Court Opinion

ID: 9882818
Source: CourtListenerOpinion
Date Created: 2023-10-05 22:20:29.355502+00
Date Added: 2024-06-11T07:39:53.811921
License: Public Domain

[Cite as DN Reynoldsburg, L.L.C. v. Maurices Inc., 2023-Ohio-3492.]

                             IN THE COURT OF APPEALS OF OHIO

                                  TENTH APPELLATE DISTRICT

DN Reynoldsburg, L.L.C.,                              :

                Plaintiff-Appellant,                  :                 No. 22AP-683
                                                                      (C.P.C. No. 18CV-7616)
v.                                                    :
                                                                 (REGULAR CALENDAR)
Maurices Incorporated,                                :

                Defendant-Appellee.                   :

                                          D E C I S I O N

                                 Rendered on September 28, 2023

                On brief: Carpenter Lipps & Leland LLP, David A. Wallace,
                and Karen M. Cadieux, for appellant. Argued: David A.
                Wallace.

                On brief: Perez & Morris LLC, Kevin L. Murch, and Amy K.
                Cooper, for appellee. Argued: Kevin L. Murch.

                 APPEAL from the Franklin County Court of Common Pleas
JAMISON, J.
        {¶ 1} Plaintif-appellant, DN Reynoldsburg, LLC (“DNR”), seeks review of a
judgment from the Franklin County Court of Common Pleas granting summary judgment
against DNR and in favor of defendant-appellee, Maurices Incorporated (“Maurices”), in a
breach of contract matter regarding a shopping center lease. After review, we affirm.
I. FACTS AND PROCEDURAL HISTORY
        {¶ 2} DNR is a real estate developer specializing in retail shopping centers. DNR
is the landlord of a shopping center known as the Shoppes at East Broad (“Shoppes”).
        {¶ 3} Sports Authority, TJ Maxx, and PetCo are the inducement tenants in the
Shoppes. Sports Authority and TJ Maxx are also identified as anchor tenants. The lease
allows the replacement of an anchor tenant with a comparable national or regional retailer.
No. 22AP-683                                                                              2

       {¶ 4} DNR entered into a lease with Maurices, a retail store selling women’s
clothing, to occupy space in the Shoppes in July 2015. The lease has a ten-year initial term
with three, five-year extensions at Maurices’ option.
       {¶ 5} The lease provides for annual minimum rent to be paid in monthly payments
beginning at $7,083.33 for the first 5 years, and gradually increasing to $8,750.00 in years
20 through 25. Maurices is also responsible for additional charges on a pro rata basis for
common area maintenance and taxes.
       {¶ 6} Pursuant to the lease, Maurices shall pay substitute rent in lieu of annual
minimum rent and additional charges in certain circumstances. This reduced rent is
defined as 5 percent of Maurices’ gross sales.
       {¶ 7} The lease has two co-tenancy conditions. The opening co-tenancy condition
allows Maurices the option to either terminate the lease or open and pay substitute rent
until all inducement tenants are open and operating. There is no temporal limit. The
ongoing co-tenancy condition allows Maurices to pay substitute rent if an anchor tenant is
not open and operating. This provision only applies for 30 consecutive months, at which
time Maurices may terminate the lease or begin paying the annual minimum rent and
additional charges for the remainder of the lease term.
       {¶ 8} The co-tenancy conditions are identified as an express inducement for
Maurices to enter into the lease. The requirement of the inducement tenants to open and
operate is a specific inducement to Maurices to open its store.
       {¶ 9} Sports Authority filed for Chapter 11 bankruptcy in March 2016, converted to
Chapter 7 bankruptcy in July 2016, and never opened. Rooms For Less, a furniture store,
was substituted as an anchor tenant and opened in September 2017.
       {¶ 10} In August 2016, Maurices chose to open despite the missing inducement
tenant, and commenced paying substitute rent to DNR.
       {¶ 11} In September 2018, DNR brought an action against Maurices for breach of
contract for failure to pay full rent and requested declaratory relief finding that the
substitute rent payments are an unenforceable penalty.
       {¶ 12} DNR moved for partial summary judgment on the unenforceable penalty
claim and Maurices moved for summary judgment on the unenforceable penalty claim and
breach of contract claim.
No. 22AP-683                                                                           3

      {¶ 13} On January 7, 2020, the trial court granted summary judgment on both
claims in favor of Maurices. DNR appealed in DN Reynoldsburg, L.L.C. v. Maurices, Inc.,
10th Dist. No. 20AP-57, 2022-Ohio-949.
      {¶ 14} This court reversed, finding a question of material fact remained if Rooms
for Less was a comparable replacement as an anchor tenant. Id.
      {¶ 15} On remand, DNR again moved for partial summary judgment on its
declaratory judgment claim and Maurices again moved for summary judgment against
DNR’s claims. The trial court granted Maurices’ motions and denied DNRs.
      {¶ 16} The lease provides that a prevailing party in a breach of contract action
receives attorney fees; Maurices has been awarded $145,000 in attorney fees to date.
      {¶ 17} DNR now brings this appeal.
II. ASSIGNMENTS OF ERROR
      {¶ 18} DNR assigns the following three assignments of error for our review:
             [1.] The trial court erred in granting summary judgment to
             Maurices Incorporated on the breach of contract claim because
             the Lease is silent on what happens when an Inducement
             Tenant can never open and the opening co-tenancy
             requirement is impossible to satisfy, and does not specifically
             preclude replacement of an Inducement Tenant.

             [2.] The trial court erred in granting summary judgment to
             Maurices Incorporated on the breach of contract claim because
             the Lease is ambiguous as to what happens when an
             Inducement Tenant can never open and the opening co-
             tenancy requirement is impossible to satisfy, and the Lease can
             reasonably be interpreted to allow replacement of an
             Inducement Tenant and does not specifically preclude
             replacement.

             [3.] The trial court erred in granting summary judgment to
             Maurices Incorporated and denying summary judgment to DN
             Reynoldsburg, LLC on the declaratory judgment claim,
             because a condition precedent can operate as an unenforceable
             penalty, and the trial court’s conclusion that the Lease
             precludes the replacement of an Inducement Tenant results in
             a 73% reduction in rent payments and $2,000,000.00 windfall
             to Maurices Incorporated that is unquestionably penal to DN
             Reynoldsburg, LLC.
No. 22AP-683                                                                                4

III. STANDARD OF REVIEW
       {¶ 19} Appeal courts review cases involving a grant of summary judgment using a
de novo standard of review, governed by the standards of Civ.R. 56. Vacha v. N. Ridgeville,
136 Ohio St.3d 199, 2013-Ohio-3020, ¶ 19.          “Because the ‘interpretation of written
contracts, including any assessment as to whether a contract is ambiguous, is a question of
law,’ it is subject to de novo review on appeal.” (Citation omitted.) Fleming v. Kent State
Univ., 10th Dist. No. 13AP-942, 2014-Ohio-3471, ¶ 18, quoting Hodge v. Prater, 10th Dist.
No. 13AP-838, 2014-Ohio-3152, ¶ 10.
       {¶ 20} “Summary judgment is proper only when the party moving for summary
judgment demonstrates: (1) no genuine issue of material fact exists, (2) the moving party is
entitled to judgment as a matter of law, and (3) reasonable minds could come to but one
conclusion, and that conclusion is adverse to the party against whom the motion for
summary judgment is made, when the evidence is construed in a light most favorable to the
non-moving party.” Harman v. Am. Alliance for Creditor Attorneys, 10th Dist. No. 09AP-
133, 2009-Ohio-4839, ¶ 11, citing Civ.R. 56(C).
       {¶ 21} The moving party has the initial burden of informing the trial court of the
basis for their motion with Civ.R. 56 evidence and pointing out relevant parts of the record
that demonstrate the absence of a genuine issue of material fact. Dresher v. Burt, 75 Ohio
St.3d 280, 293 (1996). Once the movant meets the initial burden, the non-moving party
then has the burden to set forth specific facts that show a genuine issue remains for trial.
Id.
IV. LEGAL ANALYSIS
       {¶ 22} DNR’s first assignment of error addresses whether the lease was silent on
whether an inducement tenant can be replaced, and its second assignment of error
questions whether the lease was ambiguous as to whether an inducement tenant can be
replaced. We shall combine both assignments of error for review.
       {¶ 23} “The cardinal purpose for judicial examination of any written instrument is
to ascertain and give effect to the intent of the parties.” N. Coast Premier Soccer, L.L.C. v.
Ohio Dept. of Transp., 10th Dist. No. 12AP-589, 2013-Ohio-1677, ¶ 12. In determining the
intent of the parties, the court must read the contract as a whole and give effect to every
part of the contract, if possible. Clark v. Humes, 10th Dist. No. 06AP-1202, 2008-Ohio-
No. 22AP-683                                                                                5

640; Foster Wheeler Enviresponse, Inc. v. Franklin Cty. Convention Facilities Auth., 78
Ohio St.3d 353, 361-62 (1997).       The intent of each party is to be gathered from a
consideration of the contract as a whole. Harden v. Univ. of Cincinnati Med. Ctr., 10th
Dist. No. 04AP-154, 2004-Ohio-5548, ¶ 21.
       {¶ 24} The construction of a written contract is a matter of law. Alexander v.
Buckeye Pipeline Co., 53 Ohio St.2d 241 (1978), paragraph one of the syllabus. Common
words in a contact must be given their ordinary meaning unless manifest absurdity results,
or unless some other meaning is clearly intended, based upon the face or overall contents
of the document. Id. at paragraph two of the syllabus.
       {¶ 25} When parties to a contract dispute the meaning of the contract language,
courts must first look to the four corners of the document to determine whether or not an
ambiguity exists. Buckeye Corrugated, Inc. v. DeRycke, 9th Dist. No. 21459, 2003-Ohio-
6321. “[I]f the contract terms are clear and precise, the contract is not ambiguous and the
trial court is not permitted to refer to any evidence outside of the contract itself.” Ryan v.
Ryan, 9th Dist. No. 19347, 1999 Ohio App. LEXIS 5001, *4 (Oct. 27, 1999).
       {¶ 26} When the language of a contract is unclear or ambiguous, or when the
circumstances surrounding the agreement give the plain language special meaning,
extrinsic evidence can be used to ascertain the intent of the parties. Shifrin v. Forest City
Ents., Inc., 64 Ohio St.3d 635, 638 (1992). Contract language is ambiguous if its meaning
cannot be determined from the four corners of the contract or if the contract language is
susceptible to two or more conflicting, yet reasonable, interpretations. Covington v. Lucia,
151 Ohio App.3d 409, 2003-Ohio-346, ¶ 18 (10th Dist.).
       {¶ 27} This is not a breach of contract action, but rather DNR trying to escape a
contract that turned out bad for them. Neither party is asserting a breach of contract and
seeking damages. Maurices is simply performing within the parameters of the lease.
       {¶ 28} The lease contains two co-tenancy requirements that address what happens
if an inducement or anchor tenant either never opens or opens and later closes. Here, an
inducement tenant, Sports Authority, filed for bankruptcy protection and never opened in
the Shoppes.
       {¶ 29} DNR located a replacement anchor tenant, Rooms for Less, and substituted
Rooms for Less for Sports Authority as an anchor tenant pursuant to section 8.03(c) of the
No. 22AP-683                                                                                 6

lease. Because Sports Authority is also an inducement tenant, we look to the lease for
guidance on how to replace an inducement tenant in section 8.03(b) and find no provision
that allows for such replacement.
       {¶ 30} It is this conspicuous lack of language or silence that DNR asserts
interpretation and extrinsic evidence will demonstrate that the parties intended to replace
an inducement tenant. DNR’s fix is to simply insert the “comparable replacement”
language into the opening co-tenancy condition, and Rooms for Less is the new inducement
tenant.
       {¶ 31} “The fact that a contract or lease is silent on a particular point does not make
it ambiguous.” Statler Arms, Inc. v. APCOA, Inc., 92 Ohio Misc.2d 45, 54 (1997). Silence
on a particular point or the total absence of a provision from a contract or lease, is evidence
of an intention of the parties to exclude this item from the contract or lease, rather than
evidence of an intention to include it. Atelier Dist., L.L.C. v. Parking Co. of Am., Inc., 10th
Dist. No. 07AP-87, 2007-Ohio-7138.
       {¶ 32} When one clause includes a replacement provision and a similar clause does
not, it becomes clear that other provisions are impliedly excluded. The absence of the
replacement language in the opening co-tenancy provision is not silence, but rather
evidence of the intent of the parties.
       {¶ 33} In Yardmaster, Inc. v. Kish, 11th Dist. No. 97-T-0160, 1998 Ohio App. LEXIS
4543 (Sept. 25, 1998), a lawn care provider planted grass seed under a contract that
guaranteed the grass seed would germinate, but neither party watered the seeds and grass
did not grow. The contract contained exceptions to the guarantee but did not address who
was responsible for watering the grass seed. Id. In swatting down the provider’s argument
that the contract was silent on the issue of watering and required analysis outside the four
corners of the document, the Eleventh District found the contract did not contain a
contingency requiring Kish to water the grass seed and affirmed judgment against the
provider. Id.
       {¶ 34} The absence of language addressing what happens if an inducement tenant
files for bankruptcy does not trigger a determination of ambiguity. This court must apply
the plain language of the lease. Carasalina, L.L.C. v. Smith Phillips & Assocs., 10th Dist.
No. 13AP-1027, 2014-Ohio-2423.
No. 22AP-683                                                                                7

        {¶ 35} This is a transaction between two experienced and sophisticated parties in
the shopping center business. The fact that the lease contains specific language regarding
the replacement of an anchor tenant but not an inducement tenant does not equate to
silence, but rather a deliberate choice agreed upon by the parties.
        {¶ 36} When the missing term could have been included but was not, “the courts
should not insert by construction, for the benefit of one of the parties, an exception or
condition which the parties either by design or neglect omitted from their own contract.”
Yardmaster, Inc. at 5. Principles of contract interpretation preclude a court from rewriting
a lease by adding language the parties omitted. DDR Rio Hondo, L.L.C. v. Sunglass Hut
Trading, L.L.C., 8th Dist. No. 98986, 2013-Ohio-1800.
        {¶ 37} The lease specifically provides guidance if an inducement tenant does not
open. The tenant has the option of terminating the lease or opening and paying reduced
rent.   There is no “comparable replacement” language for inducement tenants by
calculation and design. DNR argues that since the contract is silent on the issue of
replacement of an inducement tenant there is uncertainty. However, since there is silence,
this is part of the contract that DNR bargained and contracted for and the court cannot add
language that changes the bargain.
        {¶ 38} The lease is clear and unambiguous about the opening co-tenancy condition.
The inducement tenants, and not any comparable replacement tenants, must open to
trigger normal rent payments. As stated by the trial court, “if the Inducement Tenants open
in the [Shoppes], Maurices pays Annual Minimum Rent. If the Inducement Tenants do not
open in the [Shoppes], Maurices pays Substitute Rent.” (Aug. 17, 2022 Decision at 8.) The
lease contemplates an inducement tenant’s failure to open—for any reason—and provides
for the payment of substitute rent until the inducement tenant opens.
        {¶ 39} The opening co-tenancy provision functions as a negotiated dual rent
arrangement and allows Maurices to pay substitute rent if all the provisions are not met.
        {¶ 40} The failure of the co-tenancy clause to address specific reasons and remedies
regarding an inducement tenant’s failure to open “means only that the clause is a narrow
one—not that it is ambiguous.” McManus v. Eicher, 2d Dist. No. 2003-CA-30, 2003-Ohio-
6669, ¶ 13.
No. 22AP-683                                                                                   8

       {¶ 41} DNR believes there is no reasonable basis to allow the replacement of an
anchor tenant but not the replacement of an inducement tenant. However, this unfair
result complained of by DNR is a consequence of the lease and is allowed under its terms.
       {¶ 42} The general rule in contract interpretation is that if a contract is clear and
unambiguous, then its interpretation is a matter of law and there is no issue of fact to be
determined. Alexander, 53 Ohio St.2d 241. In addition, extrinsic evidence was unnecessary
because the lease is not ambiguous. Moody v. Ohio Rehab. Servs. Comm., 10th Dist. No.
02AP-596, 2002-Ohio-6965.
       {¶ 43} The lease does not authorize the replacement of an inducement tenant. The
lease is not silent on this issue. The plain language of the co-tenancy conditions is clear.
       {¶ 44} DNR’s first and second assignments of error are overruled.
       {¶ 45} DNR’s third assignment of error asserts the trial court erred by granting
summary judgment to Maurices on DNR’s request for declaratory judgment that a
condition precedent cannot be an unenforceable penalty.
       {¶ 46} DNR argues that if an inducement tenant cannot be replaced and Maurices
is permitted to pay substitute rent for the 25-year total lease term, DNR suffers a penalty,
and the act is unconscionable and would lead to a windfall for Maurices. We disagree.
       {¶ 47} In the parties first round of summary judgment motions, Maurices
successfully moved for summary judgment on DNR’s declaratory action. DNR appealed
the decision but did not cite the declaratory action as an assignment of error. A party who
fails to challenge an adverse summary judgment finding on a first appeal cannot raise that
issue on remand or in a second appeal from that remand. Fed. Fin. Co. v. Turner, 7th Dist.
No. 05 MA 134, 2006-Ohio-7072.
       {¶ 48} The law of the case doctrine provides that “the decision of a reviewing court
in a case remains the law of that case on the legal questions involved for all subsequent
proceedings in the case at both the trial and reviewing levels.” Nolan v. Nolan, 11 Ohio
St.3d 1, 3 (1984). The doctrine “precludes a litigant from attempting to rely on arguments
at a retrial which were fully pursued, or available to be pursued, in a first appeal.” Hubbard
ex rel. Creed v. Sauline, 74 Ohio St.3d 402, 404 (1996).
       {¶ 49} The law of the case doctrine is “a rule of practice rather than a binding rule of
substantive law and will not be applied so as to achieve unjust results.” Nolan at 3.
No. 22AP-683                                                                                  9

          {¶ 50} Maurices argues in the trial court’s January 7, 2020 decision that the clause
was not a penalty still controls, because it was not challenged. However, the trial court
again addressed the unenforceable penalty issue in its summary judgment decision dated
August 17, 2022. We shall address whether the lease contains an unenforceable penalty
clause.
          {¶ 51} Parties are generally free to enter contracts that contain provisions for
damages, but total freedom to contract must be balanced with public policy. Kraft Elec.
Contracting, Inc. v. Lori A. Daniels Irrevocable Trust, 1st Dist. No. C-180361, 2019-Ohio-
2029.
          {¶ 52} A liquidated damages clause is valid and enforceable as “reasonable
compensation for actual damages.” Triangle Properties v. Homewood Corp., 10th Dist.
No. 12AP-933, 2013-Ohio-3926, ¶ 37.
          {¶ 53} However, a liquidated damages clause will not be enforced if it is not strictly
compensatory and amounts to a penalty. Because punitive damages are not available in a
breach of contract action absent tortious conduct, stipulated damages that function as a
penalty are not permitted. Lake Ridge Academy v. Carney, 66 Ohio St.3d 376 (1993).
          {¶ 54} There is no breach of contract because Maurices is performing as required
under the contract. Maurices is paying substitute rent because Sports Authority has not
opened. Maurices is not seeking damages. The opening co-tenancy condition is not a
liquidated damages provision that functions as a penalty. The contractual requirement that
all inducement tenants open before Maurices is obligated to pay annual minimum rent and
additional charges is a condition precedent.
          {¶ 55} A condition precedent is an occurrence which must take place before a
contractual obligation becomes effective. Corey v. Big Run Indus. Park, L.L.C., 10th Dist.
No. 09AP-176, 2009-Ohio-5129, ¶ 18. “Essentially, a condition precedent requires that an
act must take place before a duty to perform a promise arises. If the condition is not
fulfilled, the parties are excused from performing.” Atelier Dist. at ¶ 35. An unsatisfied
condition precedent can excuse performance and is a defense to a breach of contract claim.
WSB Rehab. Servs., Inc. v. Cent. Accounting Sys., Inc., 1st Dist. No. C-210454, 2022-Ohio-
2160, ¶ 26.
No. 22AP-683                                                                              10

       {¶ 56} Here, Maurices is not required to pay annual minimum rent until the
condition of having all inducement tenants is satisfied. In the event the contingency is
unfulfilled, there is no obligation to pay full rent. “ ‘ “The non-occurrence of a condition
will prevent the existence of a duty in the other party.” ’ ” Corey at ¶ 22, quoting Morrison
v. Bare, 9th Dist. No. 23667, 2007-Ohio-6788, ¶ 18, quoting John Edward Murray, Jr.,
Murray on Contracts, Section 99B (4th Ed.2001).
       {¶ 57} The condition that all inducement tenants open has not been meet, and
Maurices’ obligation to pay full rent is excused. The fact that Maurices is paying a reduced
amount of rent is not an issue of unconscionability, but rather a product of the lease. The
condition precedent has not been filled.
       {¶ 58} DNR’s third assignment of error is overruled.
V. CONCLUSION
       {¶ 59} The lease was clear and unambiguous and did not allow a change in the
inducement tenant. The substitute rent provisions were triggered by the failure of an
inducement tenant to open, a condition precedent, and is not an unenforceable penalty.
       {¶ 60} For the foregoing reasons, we overrule DNR’s three assignments of error, and
the judgment of the Franklin County Court of Common Pleas is affirmed.
                                                                       Judgment affirmed.

                           BEATTY BLUNT, P.J., concurs.
                        DORRIAN, J., concurs in judgment only.
                                    _____________