Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ared-4_04-cv-01477/USCOURTS-ared-4_04-cv-01477-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

 WESTERN DIVISION

WILLIAM L. PATTON, JR. FAMILY

LIMITED PARTNERSHIP, LLLP, ET AL. PLAINTIFFS

vs. CASE NO. 4:04V1477GH

SIMON PROPERTY GROUP, INC., ET Al. DEFENDANTS

ORDER

This lawsuit involves a written ground lease agreement between plaintiffs who

are owners and lessors of the University Mall (Mall) in Little Rock, Arkansas, and

defendants, who are ground lessees. The parties or their predecessors signed the lease

agreement in 1965, and have amended it in writing six times. Plaintiffs filed this

action, asserting two claims. On May 16, 2005, the Court entered an Order

dismissing the second claim for relief, that is, plaintiffs’ claim that defendants had an

implied obligation under the lease agreement to locate and maintain viable retail

tenants at the University Mall, so that percentage rental income would be generated.

In the remaining claim, plaintiffs contend that defendants breached an express

covenant of the lease agreement requiring defendants to maintain the property in good

and tenantable repair. Plaintiffs seek an injunction requiring defendants to restore

the Mall to good and tenantable repair, order and condition as required by the lease

agreement. 

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Motion for Summary Judgment

Defendants have filed a motion for summary judgment on the remaining claim,

asserting that plaintiffs are not entitled to the remedy they seek–specific

performance–as a matter of law. 

On October 1, 1965, the predecessors of the parties in this action entered into

a ground lease agreement (Agreement) which permitted defendants to develop the

grounds into the Mall at defendants’ own expense, known as a ground lease. The

Agreement is to remain in effect until December 31, 2026. The Agreement has been

amended six times between 1965 and 1988. 

Section 5.3 of the Agreement provides that: 

Lessee shall throughout the Term, at no expense to Lessors, maintain,

or cause to be maintained in good and tenantable repair, order and

condition, reasonable wear and tear excepted, the Leasehold

Improvements, and promptly, at no expense to Lessors, make or cause

to be made all necessary repairs, interior and exterior, structural and

nonstructural, foreseen and unforeseen, to the Leasehold Improvements.

Section 14.3 of the Agreement provides:

This Agreement shall be construed and enforced in accordance with the

laws of the State of Arkansas. Wherever in this Agreement it is provided

that any party shall or will make any payment or perform or refrain from

performing any act or obligation, each such provisions shall, even though

not so expressed, be construed as an express covenant to make such

payment or to perform or not to perform as the case may be, such act or

obligation.

Section 17.1, under Article XVII Entitled Remedies Are Cumulative - No

Implied Waiver provides:

Lessors and Lessee shall each be entitled to specific performance, and

injunction or other appropriate equitable relief for any breach or

threatened breach of any of the provisions of this Agreement,

notwithstanding the availability of an adequate remedy at law, and each

party hereby waives the right to raise such defense in any proceeding in

equity. The specific remedies provided for in this Agreement are

cumulative and are not exclusive of any other remedy. The failure of

either party to insist in any one or more cases upon strict performance

shall not be construed as a waiver or relinquishment for the future. No

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acceptance of rentals with knowledge of any default shall be deemed a

waiver of such default.

Plaintiffs argue that defendants have waived the right to raise the adequacy of

remedy at law defense pursuant to Section 17.1 of the Agreement. Defendants counter

that the fact that the parties agreed to specific performance is not dispositive.

Franklin Point, Inc. v. Harris Trust and Sav. Bank, 660 N.E. 2d 204, 208 (Ill. Ct. App.

1995) (court has independent duty to determine whether specific performance

warranted notwithstanding that parties agreed to appropriateness of the remedy). The

equitable remedy of specific performance is not a matter of right, but rests in the

sound judicial discretion of the court to grant or to reject an application upon

consideration of the circumstances of each case. Savage v. Shields, 293 F. 863, 868 (8th

Cir. 1923)

Under Arkansas law, specific performance is not an available remedy if there

is an adequate remedy at law, City of Shannon Hills v.Sparks, 52 Ark. App. 188

(1996), the hardship to defendant outweighs plaintiff’s legitimate interest in specific

performance, Dorsey v. Hanover, Inc., 48 Ark. App. 108, 112 (1995), or it would

require too much supervision by the Court, Nakdimen v. Atkinson Improvement Co.,

149 Ark. 448 (1921). In general, Arkansas courts have found that whether specific

performance should be awarded in a particular case is a question of fact for the fact

finder. See Dossey v. Hanover, Inc., 48 Ark. App. 108, 110, 112 (1995)(“The granting

or withholding of specific performance depends on the equities of a particular case”)

See also Mitchell v. House, 71 Ark. App. 19, 21 (2000) (Whether or not specific

performance should be awarded in a particular case is a question of fact for the

chancellor”)

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Assuming that defendants have not waived the defense, defendants argue that

the Agreement contains a liquidated damages provision which provides a reasonably

certain method to calculate damages. They also claim that the general measure of

damages in situations similar to this, that is cost of repairs, is not applicable in this

instance. They state that the estimated $15 million to $18 million in repairs sought

by plaintiffs is unwarranted. Defendants argue that as the action is brought before

the end of the term of the lease, the proper measure of damages is the diminution in

value to the lessor’s interest caused by the breach. They further contend that

plaintiffs’ damages are limited under the economic waste doctrine. Defendants rely

on cases where damages were sought for the breach of contract and the only question

was the proper measure of damages See Pennington v. Rhodes, 55 Ark. App. 42 (1996)

(breach of contract action against builder alleging house was defective); Williams v.

Charles Sloan, Inc., 17 Ark. App. 247 (1986) (breach of contract action for damages

against house builder-vendor); Ed Miller & Sons, Inc. v. Earl, 502 N.W. 2d 444 (Neb.

1993) (action for damages for failure to maintain and repair premises);Peevyhouse v.

Garland Coal & Mining Co., 382 P. 2d 109 (Okla. 1963)(action for damages for breach

of coal mining lease).

Here, plaintiffs seek specific performance. The facts are clearly in dispute

regarding whether the harm is quantifiable and whether damages are adequate.

Defendants have submitted statements from experts and other individuals who

contend that requiring defendants to make the necessary repairs to the Mall would be

a waste of money (see affidavit of John Chapman, Exhibit B to Defendants’ Motion for

Summary Judgment), and that the value of the property is less than the cost of

improvements, such that major expenditures to repair the Mall would be unreasonable

and economically wasteful(affidavit of Robert McCarley, Exhibit M to Defendants’

Motion for Summary Judgment).

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Plaintiffs dispute the analyses and conclusions of McCarley and Chapman and

assert that defendants have presented conflicting evidence concerning the value of the

Mall. They argue that other evidence, such as defendants’ 2004 Form 10-K filed with

the Securities and Exchange Commission, defendants’ valuation of the lease in the

transfer to the newly formed REIT, and defendants’ offers to sell undermine

McCarley’s appraisal. They also question the reliability and accuracy of McCarley’s

appraisal. They have submitted the affidavits of William Patton and Louis Cella,

officers of the corporations owning the property who contend that the damage is not

quantifiable (Exhibits B and C to Plaintiffs’ Response to the Motion for Summary

Judgment). In his affidavit, Norman B. Krone, an expert for plaintiffs, states that he

disagrees with many of the conclusions and opinions of defendants’ experts. He

concludes that it is not unreasonable or economically wasteful to make the repairs,

that the harm caused by defendants is irreparable and cannot be quantified. (Exhibit

D of Plaintiffs’ Response to Motion for Summary Judgment) Similarly Dickson Flake,

another expert for plaintiffs, opines that the condition of the Mall is causing, or

threatens to cause, harm to plaintiffs for which money damages cannot be calculated

with reasonable certainty. (Exhibit E to Plaintiffs’ Response to Motion for Summary

Judgment) Resolution of the issue of the whether damages are adequate

involve contested factual issues. Thus, the Court cannot find as a matter of law that

plaintiffs have an adequate remedy at law.

Defendants further assert that specific performance is not warranted because

the hardship to defendants outweighs plaintiffs’ interest in specific performance.

Defendants contend that the $15 million to $18 million in repairs sought by plaintiffs

would not add significant value to plaintiffs’ interest, but would saddle defendants with

costly and unnecessary repairs. 

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Plaintiffs counter that any hardship on defendants is a product of their own

doing, by agreeing to injunctive relief in the case of breach, and by failing to maintain

and repair the Mall as required by the Agreement. See Craft Builders, Inc. v. Ellis D.

Taylor, Inc. 254 A.2d 233, 235 (Del. 1969) (specific performance will not be denied

when hardship is due to defendant's own acts or is clearly foreseeable).

Resolution of this issue requires the Court to weigh the equities after

consideration of all the evidence. The Court is not in a position, at this time, to find

as a matter of law that the hardship to defendants would outweigh plaintiffs’ interest

in specific performance.

Defendants additionally argue that specific performance would be impractical

because it would require too much supervision by the Court. “Chancery courts will not

decree the specific performance of contracts requiring continuous acts involving

mechanical skill and judgment, or technical knowledge, or acts requiring special skill,

judgment, and discretion. . . .The courts generally recognize that to enforce the specific

performance of such contracts would unreasonably tax the superintendence of the

court.” Nakdimen v. Atkinson Improvement Co. , 149 Ark. 448 (1921)(citations

omitted). However, “specific performance of a construction contract should not be

denied simply because it involves the construction of a building” Franklin Point, Inc.

v. Harris Trust and Sav. Bank, 660 N.E.2d 204,206, (Ill.App. 1 Dist.1995) “Modern

writers think that the 'difficulty of enforcement' idea is exaggerated and that the trend

is toward specific performance. Clearly there is no binding rule that deprives equity

of jurisdiction to order specific performance of a building contract. At most there is

discretion in the court to refuse such a decree. “ Grayson-Robinson Stores, Inc. v. Iris

Const. Corp., 168 N.E.2d 377, 379,(N.Y. 1960)(citing (5 Corbin, Contracts (1951 ed.),

s 1172; 5 Williston, Contracts (rev. ed.), p .3977; Restatement, Contracts, s 371,

comment a))

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At this point the Court cannot determine how much, if any, supervision would

be required in granting specific performance.

In sum, the Court finds that the motion for summary judgment should denied.

Motions in Limine

Defendants have filed three motions in limine. In the first motion , defendants

seek to preclude introduction by plaintiffs of evidence pertaining to defendants’

management, marketing, and leasing practices at the Mall. In their second motion in

limine, defendants seek to exclude evidence of defendants’ dealings concerning the

proposed Summit Mall. They contend that such evidence is not relevant to the

condition and state of repairs of the Mall.

Plaintiffs counter that the management, marketing and leasing practices at the

Mall as well evidence concerning the proposed Summit Mall are relevant to the value

defendants place on the Mall. Plaintiffs contend that the evidence will be relevant to

rebut the testimony of defendants’ experts. 

In their third motion in limine, defendants seek to exclude two letters that are

over 14 years old as well as documents that are over 20 years old. Plaintiffs assert that

the evidence is relevant to the defenses raised.

This case will be tried to the Court. The Court will be in a better position to

determine the relevance of the evidence at the time it is proffered. Therefore, the

Court will deny the motions in limine without prejudice to renew at trial.

Plaintiffs’ Motion for Court to Observe University Mall in Person During Trial

Plaintiffs ask that the Court observe the Mall in person during the trial to obtain

a better appreciation of the Mall’s condition. Plaintiffs also request that the Court

view the neighboring Park Plaza Mall, for a comparison of the two Malls.

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Defendants object, stating that since there will be extensive testimony regarding

the condition of the Mall and well as the possible introduction of numerous

photographs, a view would be cumulative. They assert that the visit would be

disruptive, create a “public spectacle,” and “eat into valuable court time.” They argue

that a view of Park Plaza Mall is irrelevant to the issues in the case.

The Court will deny, without prejudice, to renew the motion to view the Mall.

The Court will be in a better position at trial to determine whether such a Court view

would assist in resolving the issues in this case. The Court, however, is not of the

opinion that a view of Park Plaza Mall would have any probative value in this case.

Any view would be limited to University Mall.

Plaintiffs’ Motion to Strike Designation for Trial Testimony From Deposition of David

Ray

Plaintiffs contend that defendants did not timely designate Ray’s deposition

testimony or identify Ray as a witness in their pretrial disclosure sheet filed on August

1, 2005. Plaintiffs filed objections on August 15, 2005, to defendants’ pretrial

disclosures, objecting in general to defendants’ use of deposition testimony because

they had not designated any portions and more specifically to Ray’s deposition

testimony. Plaintiffs state that they did not learn of defendants’ intention to use Ray’s

deposition testimony until August 18, 2005, when defendants filed their designation

of portions of Ray’s deposition for trial testimony. They claim they are prejudiced by

this tardy disclosure.

Defendants argue that Ray is a very important witness, having served as

plaintiffs’ accountant and financial advisor, as well as plaintiffs’ agent and negotiator

for many matters concerning the Mall. Ray now lives in Cordova, Tennessee, outside

the subpoena power of the Court. His deposition was taken on June 24, 2005. 

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Plaintiffs listed Ray as a potential witness in their pretrial disclosure sheet filed

on August 1st. Defendants, in their August 1st pretrial disclosure, listed as potential

witnesses all individuals whose deposition had been taken as well as all witnesses

identified by the parties in pretrial disclosures. 

The Court cannot find that defendants’ designation of Ray’s deposition testimony

is tardy. Even assuming it is, plaintiffs are in no way prejudiced by it. The parties

were obviously aware of Ray’s existence as well as the possibility that he would be a

witness. His deposition was taken 2 months ago; plaintiffs listed him as a possible

witness, defendants listed as possible witnesses those individuals who were listed by

plaintiffs. The Court is not persuaded that plaintiffs are prejudiced by having to

counter designate portions of Ray’s 88-page deposition. If this is too burdensome for

plaintiffs, defendants can designate the entire deposition as trial testimony.

The Court is not persuaded that Ray’s deposition testimony should be stricken.

CONCLUSION

Accordingly, defendants’ motion for summary judgment is denied; defendants’

first, second, and third motions in limine are denied without prejudice to renew;

plaintiffs’ motion for Court to observe University Mall in person is denied without

prejudice to renew; plaintiffs’ motion to strike designation for trial testimony from

David Ray’s deposition is denied.

IT IS SO ORDERED this 31st day of August, 2005.

___________________________________

UNITED STATES DISTRICT JUDGE

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