Court Opinion

ID: 4283880
Source: CourtListenerOpinion
Date Created: 2018-06-13 14:53:43.838967+00
Date Added: 2024-06-11T14:35:12.154081
License: Public Domain

06/12/2018
                IN THE COURT OF APPEALS OF TENNESSEE
                           AT KNOXVILLE
                                  April 18, 2018 Session

           JOHNSON REAL ESTATE LIMITED PARTNERSHIP v.
               VACATION DEVELOPMENT CORP., ET AL.

                  Appeal from the Chancery Court for Sevier County
                  No. 17-1-002   Telford E. Forgety, Jr., Chancellor

                             No. E2017-01774-COA-R3-CV

This action involves a long-term ground lease in which the defendant lessee paid for and
maintained an insurance policy on the property for its benefit. The defendant surrendered
the premises after the motel facility constructed on the land was destroyed by a wildfire
before the expiration of the lease. The plaintiff lessor filed suit, seeking an equitable lien
on the policy and its proceeds, a constructive trust against the insurance rights and
recovery, a claim on the policy as a third-party beneficiary, and injunctive relief. The
court granted summary judgment in favor of the defendant. We affirm.

      Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                           Affirmed; Case Remanded

JOHN W. MCCLARTY, J., delivered the opinion of the Court, in which D. MICHAEL
SWINEY, C.J. and RICHARD H. DINKINS, J., joined.

R. Louis Crossley, Jr., Knoxville, Tennessee, for the appellant, Johnson Real Estate
Limited Partnership.

Ronald T. Hill, Knoxville, Tennessee, for the appellees, Vacation Development Corp.
and Hugh D. Faust, III.

                                         OPINION

                                 I.      BACKGROUND

       The long-term ground lease at issue was between Johnson Real Estate Limited
Partnership (“Plaintiff”) and Vacation Development Corporation (“Defendant”) for four
acres of land located on River Road in Gatlinburg, Tennessee. The lease provided a term
of 50 years, beginning on October 15, 1969, and ending on October 15, 2019. As
pertinent to this appeal, the lease required Defendant to construct “modern motel
facilities at a cost of not less than [$500,000]” within 18 months of the date of the
agreement and to remit payment of $15,000 on the date of the execution of the lease and
$20,000 per year, plus 7 percent of the gross receipts exceeding the sum of $20,000. The
lease further provided that at the “termination or cancellation of [the agreement] all
improvements thereon shall become the property of the Lessor.” The Parties were not
required to carry property insurance; however, Defendant was required to carry public
liability insurance and to pay all taxes, utilities, license fees, and expenses of “every kind
and nature incident to the use of said premises.” Defendant constructed the motel
facilities, which became known as the Riverhouse Motor Lodge (“the Motel”). Since that
time, the original Lessors assigned their interests to Plaintiff.

        Defendant insured the Motel and another of its properties under a single
commercial insurance policy obtained through Travelers Indemnity Company of America
(“Insurance Company”). Defendant paid all premiums for the policy that covered both
facilities with a policy limit of $8,122,974.

       The Motel was destroyed by the Gatlinburg wildfires in November 2016.
Defendant advised Plaintiff that it would not rebuild the Motel unless Plaintiff entered
into a new 50-year lease on the same terms as the current lease, with the exception that
the new lease would include an insurance provision. Plaintiff filed suit against Defendant
and Insurance Company for anticipatory breach of the agreement. Plaintiff sought an
equitable lien on the insurance policy and its proceeds, a constructive trust against the
insurance rights and recovery, a claim on the policy as a third-party beneficiary, and
injunctive relief. Thereafter, Defendant notified Plaintiff of its surrender of the property
and termination of the lease via letter, dated March 17, 2017, which provided as follows:

       As you know, [the Motel] constructed by [Defendant] on the real property
       owned by [Plaintiff] on River Road in Gatlinburg, Tennessee was totally
       destroyed by fire on November 28, 2016. Accordingly, and pursuant to the
       provisions of [Tennessee Code Annotated section 66-7-102], [Defendant]
       hereby surrenders possession of the real property and terminates its Lease
       Agreement as above captioned effective as of the date of this letter.

Section 66-7-102 provides as follows:

       (a)    Where any building which is leased or occupied is destroyed or so
       injured by the elements, or any other cause, as to be untenantable and unfit
       for occupancy, and no express agreement to the contrary has been made in
       writing, the lessee or occupant may, if the destruction or injury occurred
       without fault or neglect by the lessee, surrender possession of the premises,
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       without liability to the lessor or owner for rent for the time subsequent to
       the surrender.

       (b)    A covenant or promise by the lessee to leave or restore the premises
       in good repair shall not have the effect to bind the lessee to erect or pay for
       such buildings as may be so destroyed, unless in respect of the matter of
       loss or destruction there was neglect or fault on the lessee’s part, or unless
       the lessee has expressly stipulated in writing to be so bound.

The Parties filed cross-motions for summary judgment. The court granted summary
judgment in favor of Defendant, finding that Defendant had properly terminated the lease
and surrendered the property pursuant to Section 66-7-102 and that Defendant was not
required to rebuild the motel facilities.

                                      II.   ISSUES1

       A.     Whether Defendant properly terminated the lease pursuant to
       Section 66-7-102.

       B.    Whether Defendant is required to rebuild the motel facilities
       pursuant to the terms of the lease agreement and the implied covenants of
       good faith and fair dealing and continuous occupancy.

                               III.     STANDARD OF REVIEW

       The appropriate summary judgment standard to be applied is as follows:

       [W]hen the moving party does not bear the burden of proof at trial, the
       moving party may satisfy its burden of production either (1) by
       affirmatively negating an essential element of the nonmoving party’s claim
       or (2) by demonstrating that the nonmoving party’s evidence at the
       summary judgment stage is insufficient to establish the nonmoving party’s
       claim or defense.

Rye v. Women’s Care Center of Memphis, MPLLC, 477 S.W.3d 235, 264 (Tenn. 2015).
When a properly supported motion is made, “the nonmoving party ‘may not rest upon the
mere allegations or denials of [its] pleading,’ but must respond, and by affidavits or one
of the other means provided in [Rule 56 of the Tennessee Rules of Civil Procedure], ‘set
forth specific facts’ at the summary judgment stage ‘showing that there is a genuine issue
1
  Insurance Company was relieved from filing a responsive brief given the tangential nature of its
involvement.
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for trial.’” Id. at 265 (quoting Tenn. R. Civ. P. 56.06). Summary judgment “shall be
rendered forthwith 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 the moving party is entitled to a judgment as a matter of
law.” Tenn. R. Civ. P. 56.04.

       “We review a trial court’s ruling on a motion for summary judgment de novo,
without a presumption of correctness.” Rye, 477 S.W.3d at 250 (citations omitted). “In
doing so, we make a fresh determination of whether the requirements of [Rule 56] have
been satisfied.” Id. (citations omitted). We must view all of the evidence in the light
most favorable to the nonmoving party and resolve all factual inferences in the
nonmoving party’s favor. Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 84 (Tenn. 2008).
This action also presents a matter of statutory interpretation, which is reviewable as a
matter of law pursuant to the de novo standard without any presumption of correctness.
In re Estate of Tanner, 295 S.W.3d 610, 613 (Tenn. 2009) (citing Gleaves v. Checker
Cab Transit Corp., 15 S.W.3d 799, 802 (Tenn. 2000)); Myint v. Allstate Ins. Co., 970
S.W.2d 920, 924 (Tenn. 1998)).

                                   IV.    DISCUSSION

                                          A. & B.

       Plaintiff urges this court to consider the legislative history of Section 66-7-102 and
a case decided two years prior to its passage. See Zuccarello v. Clifton, 12 Tenn. App.
286, 289 (Tenn. App. 1930) (holding that the destruction of the building by fire did not
remove a covenant to repair contained in the lease). Plaintiff claims that Section 66-7-
102 does not address the precise issue raised in Zuccarello and now raised here, whether
a ground tenant must rebuild a building it erected when said building was to transfer to
the landowner at the end of the term. Defendant responds that termination of the lease is
appropriate when the statute is unambiguous and makes no distinction between a ground
lease and a real property lease. Defendant notes that our Supreme Court recognized in
EVCO Corp. v. Ross, 528 S.W.2d 20, 23 (Tenn. 1975), that the statute overruled the
holding in Zuccarello. Further, the facts at issue here are distinguishable from the facts
in Zuccarello, namely the lease in this case does not include a covenant to repair.

       The primary objective of statutory interpretation is to carry out the legislative
intent without broadening or restricting a statute beyond its intended scope. Houghton v.
Aramark Educ. Res., Inc., 90 S.W.3d 676, 678 (Tenn. 2002). In construing legislative
enactments, we presume that every word in a statute has meaning and purpose and should
be given full effect if the obvious intention of the General Assembly is not violated by so
doing. In re C.K.G., 173 S.W.3d 714, 722 (Tenn. 2005). When a statute is clear, we
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apply the plain meaning without complicating the task. Eastman Chem. Co. v. Johnson,
151 S.W.3d 503, 507 (Tenn. 2004). We also presume that the General Assembly was
aware of the state of the law when the statutes were enacted and that it did not intend to
enact a useless statute. Lee Med., Inc. v. Beecher, 312 S.W.3d 515, 527 (Tenn. 2010).

       Plaintiff presents a thorough legislative history of Section 66-7-102 in support of
its argument that we should rely upon the court’s decision in Zuccarello. This case is
distinguishable from the holding in Zuccarello, which imposed an obligation to rebuild
based upon a covenant to repair, a covenant not included here. Moreover, the statute at
issue here is unambiguous. We need not consider the legislative history or whether the
statute was enacted in response to Zuccarello when the plain language clearly overrules
the holding in Zuccarello. See EVCO Corp., 528 S.W.2d at 23-24 (providing that the
lessors of a building destroyed by fire would have had the statutory right to terminate the
lease pursuant to Section 66-7-102, absent provisions in the lease providing otherwise).
The legislature specifically exempted those lessees or occupants who included such a
covenant to repair from an obligation to rebuild. Indeed, the statute provides as follows:

       (a)    Where any building which is leased or occupied is destroyed or so
       injured by the elements, or any other cause, as to be untenantable and unfit
       for occupancy, and no express agreement to the contrary has been made in
       writing, the lessee or occupant may, if the destruction or injury occurred
       without fault or neglect by the lessee, surrender possession of the premises,
       without liability to the lessor or owner for rent for the time subsequent to
       the surrender.

       (b)    A covenant or promise by the lessee to leave or restore the premises
       in good repair shall not have the effect to bind the lessee to erect or pay for
       such buildings as may be so destroyed, unless in respect of the matter of
       loss or destruction there was neglect or fault on the lessee’s part, or unless
       the lessee has expressly stipulated in writing to be so bound.

Tenn. Code Ann. § 66-7-102 (emphasis added). Our plain reading of the statute leads us
to conclude that the statute controls when the Parties did not contract to rebuild or insure
the Motel in the case of destruction by the elements. We believe this interpretation is
within the legislature’s intent as evidenced by the use of the words “leased or occupied”
in 66-7-102(a).

       Plaintiff next argues that the court erred in finding that the lease did not require
Defendant to rebuild when the lease anticipated that a building would pass at the end of
the term. Plaintiff claims that Defendant has received a windfall of insurance proceeds
without an obligation to rebuild. Plaintiff asserts that the court in Zuccarello held
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otherwise and that the covenants of good faith and fair dealing and continuous occupancy
require Defendant to rebuild. Defendant responds that the lease did not include an
obligation to repair or rebuild as found in Zuccarello and that the covenants of good faith
and fair dealing and continuous occupancy cannot create a contractual right to rebuild
where one does not exist in the agreement. Plaintiff issues a reply brief in which it
argues, inter alia, that the court and Defendant failed to recognize the distinction between
a real property lease and a ground lease requiring the tenant to construct the building.
Plaintiff claims that the plain language of Section 66-7-102 does not apply to such leases
and that the implied covenant of good faith and fair dealing found in all contracts would
necessarily include the transfer of a building at the end of the lease term that anticipated
the construction of the same by the tenant.

       Again, the plain language of the statute belies Plaintiff’s assertion and
unambiguously removes any obligation to rebuild, unless the Parties contracted
otherwise. The Parties did not contract otherwise, and this court cannot impose such a
provision. Accordingly, we hold that the Defendant was within its rights to terminate the
lease agreement and surrender the leased premises following the destruction of the Motel.

                                   V.     CONCLUSION

      We affirm the decision of the trial court and remand for such further proceedings
as may be necessary. Costs of the appeal are taxed to the appellant, Johnson Real Estate
Limited Partnership.

                                                  _________________________________
                                                  JOHN W. McCLARTY, JUDGE

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