R & E Petroleum, LLC, Ragheb Chaar, & Elsie Aradi Versus Lkm Convenience, LLC & Toan Hyunh

• Court: Louisiana Court of Appeal
• Decided: February 1, 2023
• Docket: 22-CA-376
• Status: Unknown

Opinion

R & E PETROLEUM, LLC, RAGHEB CHAAR, NO. 22-CA-376 & ELSIE ARADI FIFTH CIRCUIT VERSUS COURT OF APPEAL LKM CONVENIENCE, LLC & TOAN HYUNH STATE OF LOUISIANA

ON APPEAL FROM THE TWENTY-FOURTH JUDICIAL DISTRICT COURT PARISH OF JEFFERSON, STATE OF LOUISIANA NO. 802-522, DIVISION "N" HONORABLE STEPHEN D. ENRIGHT, JR., JUDGE PRESIDING

February 01, 2023

FREDERICKA HOMBERG WICKER JUDGE

Panel composed of Judges Susan M. Chehardy, Fredericka Homberg Wicker, and Hans J. Liljeberg

AFFIRMED AS TO THE PORTION OF THE JUDGMENT APPEALED FHW SMC HJL COUNSEL FOR PLAINTIFF/APPELLANT, R & E PETROLEUM, LLC, RAGHEB CHAAR AND ELSIE ARDI Scott L. Sternberg Graham H. Williams Mervatt F. Eljaouhari

COUNSEL FOR DEFENDANT/APPELLEE, LKM CONVENIENCE, L.L.C. Steven M. Hannan Justin A. Caprera

COUNSEL FOR DEFENDANT/APPELLEE, TOAN HYUNH Miles G. Trapolin WICKER, J.

Plaintiffs-sublessees seek review of the trial court judgment finding that

plaintiffs are not entitled to dissolution of the commercial sublease executed

between plaintiffs and defendant-sublessor, and further, awarding defendant

$252,056.12 in past due rent, in addition to attorney fees and reasonable costs and

fees. For the following reasons, we affirm the trial court judgment.

FACTUAL AND PROCEDURAL BACKGROUND

This litigation arises out of a Sublease executed between defendant-

sublessor, LKM Convenience, L.L.C. (“LKM”), and plaintiffs-sublessees, R&E

Petroleum, L.L.C., Ragheb Chaar, and Elsie Aradi (sometimes hereinafter referred

to collectively as “R&E”), for a property located at 1020 Bridge City Drive and

operated as a convenience store and fuel station. LKM leased the property

pursuant to a Master Lease executed between LKM and the property owner-lessor,

Toan Hyunh. After significant water intrusion and termite issues arose, R&E

filed suit against Hyunh and LKM, contending that Hyunh was responsible for

necessary repairs to the property as set forth in the Master Lease, and seeking

dissolution of the Sublease under La. C.C. art. 2719.1 LKM answered the suit,

alleging that the Sublease contained a waiver of warranty provision and further

placed the duty of all repairs on R&E. LKM also filed a reconventional demand

against R&E for past due rental payments and late fees, in addition to reasonable

attorney fees and costs as provided for in the Sublease between the parties.

The matter proceeded to a bench trial on December 13 and 14, 2021. At

trial, the parties introduced into evidence the Master Lease and Sublease executed

between the parties. The August 1, 2015 Master Lease executed between owner-

lessor Hyunh and LKM, with a ten-year (120 month) term, provides that LKM pay

1 R&E sought approval to deposit the monthly rental payments into the registry of the court pending the outcome of the litigation.

22-CA-376 1 a monthly rent of $5,250.00 for the first 12 months of the lease, with a $100 annual

increment increase in rental payments throughout the term of the lease. The

Master Lease further provides that LKM is responsible to repair or maintain the

entirety of the leased premises, but that lessor Hyunh “shall be responsible only to

maintain the roof, foundations and outside walls.” The Master Lease allows for

LKM to sublet the leased premises with Hyunh’s written consent.

The Sublease between R&E and LKM, executed on July 12, 2016, provides

that R&E pay to LKM a monthly rental payment of $8,000.00 for the first three-

year period of the Sublease, with incremental increases throughout the term of the

Sublease—terminating on July 31, 2025.2 The Sublease described the leased

premises and stated that the terms of the Master Lease would be incorporated into

the Sublease and that, generally, “Sublessee hereby agrees that, notwithstanding

any provisions of this Sublease or any current or future agreements by and between

Sublessor and Sublessee to the contrary, it will not commit any act which is

prohibited by the Primary Lease or which will constitute an event of default of any

of Sublessee’s obligations under the Primary Lease.”

The Sublease also contained a subsequent, separate waiver of warranty

provision. The provision provided:

Article 8 Condition of Premises and Improvements

Sublessee has examined the Leased Premises, the improvements thereon, and the present uses and non uses thereof. Sublessee accepts the Leased Premises in the condition in which they now are, without representation or warranty, express or implied, in fact or by law, by the Sublessor, and without recourse to the Sublessor as to title, the nature, condition, or usability of the Leased Premises, or the uses to which the Leased Premises may be put. Sublessee expressly waives the warranties that the Leased Premises is suitable for the purpose for which it is leased and that it is free of vices and defects that prevent its use for that purpose provided by Louisiana Civil Code Articles 2696 and 2697 et seq.

2 The original Sublease provided the Sublease’s term as a month-to-month term. However, the parties subsequently executed an Amendment to the Sublease to define a fixed term, with the lease extending to July 31, 2025.

22-CA-376 2 Immediately following the warranty waiver language, this provision contained a

designated space for sublessees’ signatures. Ragheb Chaar and Elsie Aridi, as

members of R&E Petroleum, L.L.C., placed their signatures on the designated

signature lines verifying that “[t]he Undersigned Hereby Acknowledge That The

Above Waiver Of Warranties Have Been Pointed Out And Explained To Sublessee

And Sublessee Hereby Accepts Same.”

The Sublease further included a provision titled, “Repairs, Maintenance and

Utilities,” which provided that “[a]ll maintenance, repairs, and replacements which

may be required to the Lease Premises …shall be the sole responsibility and

expense of the Sublessee.”3

At trial, Ragheb Chaar testified that he is an owner of R&E Petroleum,

L.L.C. with his wife, Elsie Aridi, and that he has been in the convenience store and

gas station industry for 39 years. He testified that R&E operates five gas station

convenience store locations, including 900 Bridge City and 1020 Bridge City (the

leased premises at issue). He testified that the opportunity to open a gas station

convenience store at 900 Bridge City, which is a bigger store, arose approximately

one month after he leased the 1020 Bridge City location. He explained that he

believed leasing 900 Bridge City, due to the proximity to the 1020 Bridge City

location, would be a smart business move in order to control the price of the fuel

product in the area.

He testified that at some point in time the condition of the 1020 Bridge City

store began deteriorating due primarily to water intrusion issues. In 2016, he

noticed significant water intrusion issues from the roof and informed a

representative for LKM of the issue. At some point in 2017, the roof was repaired

3 The Sublease also provided that R&E would pay all property taxes due for the Leased Premises during the term of the Sublease.

22-CA-376 3 or replaced by a roofer retained by Hyunh. However, Chaar testified that the water

intrusion and roof leak issues became significantly worse at the end of 2018 and

into 2019, interfering with the ability to operate the store successfully.4

Chaar testified at trial that he never read the Sublease executed between

R&E and LKM. He acknowledged that his signature appears at the conclusion of

the Sublease and that a second signature appears in a separate section wherein he

signed and accepted on behalf of R&E that he “waives the warranties that the

Leased Premises, or the uses to which the Leased Premises is suitable for the

purpose for which it is leased and that it is free of vices and defects that prevent its

use for that purpose provided by Louisiana Civil Code Articles 2696 and 2697, et

seq.” and further “Acknowledge[d] That The Above Waiver of Warranties Have

Been Pointed Out And Explained to Sublessee.”

Chaar testified without hesitation that, prior to entering into the commercial

Sublease for the immovable property, he did not consult an attorney to review the

lease and did not personally read the documents that he signed. He testified that

he believed that, similar to other leases for other stores he has operated, the lessor

Hyunh would be responsible for the roof, foundation, electrical and plumbing

systems, and essentially all major repairs.

Mrs. Elsie Aridi, an owner of R&E, also testified that she and her husband,

Ragheb Chaar, operate five gas station convenience stores in the metropolitan area.

She testified that she handles the daily financial aspects for the five stores but that

she retains MK Accounting on occasion when necessary for taxes or other

4 He testified that the entire roof blew off the portion of the building that houses the fuel station during Hurricane Ida and that, at the time of trial, it had never been replaced and his store had not reopened. He testified, however, that the other businesses occupying the spaces attached to the Lease Premises have reopened since Ida. It does not appear that any rental payments beyond the August 2021 (when Hurricane Ida struck the area) were awarded in this suit and thus that issue is not before the Court.

22-CA-376 4 purposes.5 Mrs. Aridi reiterated that she did not personally read the Sublease and

did not ask any attorney to review the Sublease prior to signing it.

Lenny Motwani, owner of LKM, testified that he is a businessman who has

been in the convenience store business since 2008. He testified that at the time he

executed the Sublease with R&E in July, 2016, Hyunh did not immediately “sign

off” on the Sublease or accept R&E as sublessee. Further, he did not obtain

Hyunh’s written consent to the Sublease until roughly seventeen months later, in

January 2018. He acknowledged that R&E began occupying the leased premises

prior to obtaining Hyunh’s consent, which is required under the Master Lease. As

to the Sublease executed between LKM and R&E, Mr. Motwani testified that his

obligations under the Sublease simply included collecting rent and insurance

payments.6

Pini Weinstien, Hyunh’s attorney and acting manager for the property at

1020 Bridge City, testified that he prepared the Master Lease between Hyunh and

LKM. He testified that LKM indicated a desire to sublease the property beginning

in 2016, but that he advised LKM to be selective in selecting a prospective

sublessee. Initially, Weinstien discouraged approving any sublease between LKM

and R&E because he had concerns after reviewing the financial documentation

R&E provided. He testified that he was unaware at that time that R&E began

occupying the property without written approval of the owner-lessor as required

under the Master Lease. At some point, Weinstien reviewed the proposed Sublease

between LKM and R&E, which included a waiver of warranty provision and

further placed all responsibility for repairs on R&E. Weinstien testified that

5 Mrs. Aridi testified to the alleged profit losses during years 2018 and 2019 due to the alleged deteriorating condition of the property. However, on cross examination, she acknowledged that she coded her spreadsheets incorrectly and that the accounting firm would be the appropriate source for those estimates. 6 Motwani testified that he had not received rental payments since July 2019 or insurance reimbursements since December 2019. However, Motwani acknowledged that the parties had reached an agreement that the rental payments would be placed in the registry of the court pending resolution of the litigation.

22-CA-376 5 those restrictions in the Sublease “absolutely” factored into his recommendation to

Hyunh to accept R&E as a sublessee and was a determining factor in Hyunh’s

ultimate decision to approve the Sublease despite concerns over R&E’s finances.7

On February 4, 2022, the trial court rendered its judgment dismissing R&E’s

suit against defendants, finding that R&E is not entitled to dissolution of the

Sublease in light of the waiver of warranty provision, which waived any warranty

that the leased premises was free from vices or defects, and further considering the

provision within the Sublease placing the duty for repairs of the leased premises on

R&E.8 The trial court judgment further sustained LKM’s reconventional demand,

finding that R&E was in default or breach of the Sublease and liable to LKM in the

amount of $252,056.12 in past due rental payments and fees.9

DISCUSSION

On appeal, R&E alleges that the trial court legally erred in failing to find that

LKM breached the Sublease between the parties. R&E contends that because the

Master Lease, which required lessor-owner Hyunh to be responsible for the roof

and foundation repairs to the property, was incorporated into the Sublease, Hyunh

should have been responsible for repairs to the roof and those related to termite

damage.

In Louisiana, contracts have the force of law between the parties, and the

parties may choose to define their obligations by their own terms. Good v.

Saia, 08-0682 (La. App. 4 Cir. 4/8/09), 9 So.3d 1070, 1074; see also, La. C.C. art.

7 The testimony at trial reflects that, although the “Consent of Property Owner under Primary Lease” was signed as a separate document and dated June 22, 2016, Hyunh’s approval was not actually granted and the document was not signed until January 2018. An August 2, 2017 email from Chaar to Motwani and LKM’s counsel indicates that the landlord had not signed the “Assignment” yet and that Weinstien had instructed him that R&E was occupying the building illegally because the landlord had not consented to or approved the sublease at that time. The testimony of all parties appears to indicate that the “Consent of the Property Owner” document was not actually signed until January 2018. 8 The trial court judgment also dismissed Hyunh’s cross-claim against LKM. That portion of the judgment is the subject of a separate pending appeal in this Court, 22-CA-238. 9 The trial court judgment also awarded LKM reasonable costs and attorney fees. On appeal, R&E does not challenge the amount of the judgment awarded; rather, its assignments of error contend only that Hyunh is responsible for the roof and other repairs and that R&E is not responsible for paying any rent until the property deficiencies are repaired.

22-CA-376 6 1983. A sublease is an agreement whereby the original lessee leases to a third

party, the sublessee, all or part of the property leased to the original lessee.

Gennaro v. Royal Oldsmobile Co., 09-1062 (La. App. 5 Cir. 5/25/10), 37 So.3d

1109, 1114 (quoting Hebert v. Hines, 615 So.2d 44, 46 (La. App. 3 Cir.1993). A

sublease is a new contract which is separate and distinct from the original lease

between the sublessor and the original lessor. Id. The rights and obligations of the

sublessor and sublessee arise out of the provisions of the sublease; however, there

is no privity of contract between the owner of the property and the sublessee. Id.

A sublease is distinct from an assignment. An assignment of a lease

specifically transfers all of the original lessee’s rights in the lease to the assignee;

with a sublease, the original lessee maintains some control or interest in the

original lease. Id.; Whitley’s Estate v. Anning, 392 So.2d 799, 800 (La. App. 3 Cir.

1980). When a dispute arises between the sublessee and sublessor regarding a

breach of the sublease, the court looks to the terms of the sublease in order to

determine the respective rights of the sublessee and sublessor. Bourgeois, Dupuis,

Wright & Cohen v. Hayes, 457 So. 2d 231, 234 (La. App. 3 Cir. 1984), writ denied

sub nom. Bourgeois, Dupuis, Wright, & Cohen Certified Pub. Accts. v. Hayes, 461

So.2d 315 (La. 1984).

“The Civil Code ... while defining and governing the relationship of the

parties to a lease, still leaves the parties free to contractually agree to alter or

deviate from all but the most fundamental provisions of the Code which govern

their lease relationship.” Carriere v. Bank of Louisiana, 95-3058 (La.10/31/97),

702 So.2d 648, 666 (on reh’g); 727 Toulouse, L.L.C. v. Bistro at the Maison De

Ville, L.L.C., 12-1014 (La. App. 4 Cir. 8/21/13), 122 So.3d 1152, 1161, writ

denied, 13-2414 (La. 1/10/14), 130 So.3d 327.

La. C.C. art. 2696 provides, in pertinent part, that “[t]he lessor warrants the

lessee that the thing is suitable for the purpose for which it was leased and that it

22-CA-376 7 is free from vices or defects that prevent its use for that purpose.” The

aforementioned warranty however “may be waived, but only by clear and

unambiguous language that is brought to the attention of the lessee.” La. C.C. art.

2699; Crosby v. Sahuque Realty Co., Inc., 21-0167 (La. App. 4 Cir. 10/13/21),

2021 WL 4771687.10 “Louisiana cases have upheld the validity of transfer of

liability provisions ... in the context of a lease of immovable property.” Ford v.

Bienvenu, 00-2376 (La. App. 4 Cir. 8/29/01), 804 So.2d 64, 69, writ denied, 01-

2688 (La. 12/14/01), 804 So.2d 639. A party who signs a written lease is “bound

to know and understand the provisions of the lease.” Crosby, supra, quoting Ford

v. Bienvenu, supra, 804 So.2d at 71; see also generally Aguillard v. Auction

Management Corp., 04-2804 (La. 6/29/05), 908 So.2d 1, 10.

Upon a review of the record, we find the waiver of warranty—a separate

provision or section of the Sublease contract, clearly visible that required additional

signatures of the parties—controls in this case, and the repair provision places full

responsibility for the repairs to the Leased Premises without exception and at the

expense of the sublessee, R&E. We further agree with the trial court’s finding that

the contract between LKM and R&E, titled “Sublease Agreement”—which

provided for a higher security deposit payment and a higher monthly rental

payment than the Master Lease, and further directed that the rental payments and

security deposit be made to the sublessor, LKM, rather than the original lessor,

Hyunh is not an assignment of the Master Lease and, thus, there is no privity of

contract between Hyunh and R&E. Consequently, we further agree with the trial

court’s finding that Hyunh did not owe R&E any duty to make repairs to the leased

10 Further, where a lessee has assumed responsibility for the condition of the premises and waived the warranty from vices and defects, La. R.S. 9:3221 provides a statutory exception to La. C.C. art. 2699 and it is not mandatory that the waiver be brought to the attention of the lessee unless certain conditions apply. Because the waiver of warranty provision in this case was clear and brought to the attention of the lessee within the Sublease, we need not address the applicability of La. R.S. 9:3221.

22-CA-376 8 premises. See Gennaro v. Royal Oldsmobile Co., Inc., 09-1062 (La. App. 5 Cir.

5/25/10), 37 So.3d 1109. 1114.

DECREE

Accordingly, we affirm that portion of the February 4, 2022 judgment

dismissing R&E’s petition against Hyunh and LKM, and further affirm that

portion of the judgment against R&E and in favor of LKM in the amount of

$252,056.12, plus LKM’s reasonable fees, attorney fees, and costs as provided to

the prevailing party pursuant to the Sublease executed between the parties.

AFFIRMED AS TO THE PORTION OF THE JUDGMENT APPEALED

22-CA-376 9 SUSAN M. CHEHARDY CURTIS B. PURSELL

CHIEF JUDGE CLERK OF COURT

SUSAN S. BUCHHOLZ FREDERICKA H. WICKER INTERIM CHIEF DEPUTY CLERK JUDE G. GRAVOIS MARC E. JOHNSON ROBERT A. CHAISSON LINDA M. WISEMAN STEPHEN J. WINDHORST FIRST DEPUTY CLERK HANS J. LILJEBERG JOHN J. MOLAISON, JR. FIFTH CIRCUIT MELISSA C. LEDET JUDGES 101 DERBIGNY STREET (70053) DIRECTOR OF CENTRAL STAFF POST OFFICE BOX 489 GRETNA, LOUISIANA 70054 (504) 376-1400

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22-CA-376 E-NOTIFIED 24TH JUDICIAL DISTRICT COURT (CLERK) HONORABLE STEPHEN D. ENRIGHT, JR. (DISTRICT JUDGE) GRAHAM H. WILLIAMS (APPELLANT) SCOTT L. STERNBERG (APPELLANT) JUSTIN A. CAPRERA (APPELLEE) STEVEN M. HANNAN (APPELLEE) MILES G. TRAPOLIN (APPELLEE)

MAILED PINI AARON WEINSTEIN (APPELLEE) MERVATT F. ELJAOUHARI (APPELLANT) ATTORNEY AT LAW ATTORNEY AT LAW 416 LAFAYETTE STREET 935 GRAVIER STREET GRETNA, LA 70053 SUITE 2020 NEW ORLEANS, LA 70112