Gatlinburg Roadhouse Investors, LLC. v. Charlynn Maxwell Porter

Citation: Not availableDocket: E2011-02743-COA-R3-CV

Court: Court of Appeals of Tennessee; December 19, 2012; Tennessee; State Appellate Court

Original Court Document: View Document

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Gatlinburg Roadhouse Investors, LLC (GRI) filed a complaint against Charlynn Maxwell Porter, alleging breach of contract and seeking specific performance related to a commercial sublease of a parking lot for the Texas Roadhouse restaurant in Gatlinburg. The trial court found the contracts ambiguous and ruled in favor of Porter, dismissing GRI's complaint but not awarding attorney's fees, which were stipulated in the contract. On appeal, the court affirmed the trial court's judgment but modified it to instruct the trial court to award attorney's fees to Porter.

The contract history includes a Parking Lot Sublease originating in January 2001, which established a base rent of $100, subject to adjustments every five years until 2025. An amendment in March 2006 significantly altered the rent structure, setting it at $70,000 for two years, then $87,500 for the subsequent three years, with future adjustments. The contract includes a condition that rent can be revised if ownership of the Texas Roadhouse restaurant is sold or if Porter ceases to hold a membership interest in GRI. This revision would take effect six months after such a change in ownership or interest.

The Annual Base Rent outlined in Section 1.06 will be adjusted to reflect the annual fair market value of the Demised Premises, as assessed by an independent, certified commercial real estate appraiser. This appraiser will be chosen by a panel consisting of one appraiser appointed by the Landlord and one by the Tenant, with their valuation being final and binding. The Tenant is responsible for all appraisal fees.

In the summer of 2008, GRI sold a restaurant to a national franchisor, but the land and building lease were not included in the sale. Robert McManus, GRI's Chief Manager, invoked rent modification procedures under Section 1.07 of the Parking Lot Sublease in a letter to Ms. Porter on September 8, 2008. Ms. Porter refused to participate in the appraisal process, leading to allegations of breach of the Parking Lot Sublease by GRI, which sought specific performance for lease modification.

In her February 19, 2010 Answer and Counterclaim, Ms. Porter denied the allegations, asserting that Section 1.07 was meant for her benefit and that she did not consent to its use. She disputed the claim that the restaurant was sold and stated that no lease was transferred. Ms. Porter also claimed that GRI had previously assured her that no lease assignment was necessary and that their relationship would remain unchanged. 

She denied that the restaurant's sale constituted a "condition subsequent" under Section 1.07 and raised various affirmative defenses, including failure to state a claim, unclean hands, waiver, estoppel, and others. Additionally, her Counterclaim sought declaratory judgment, damages, and equitable relief, asserting her significant, albeit minority, ownership interest in GRI and detailing her role as a co-founder with McManus.

Ms. Porter leased land and an adjacent parking lot to GRI at significantly reduced rates, motivated by Mr. McManus’s assurances of profitable co-ownership. The parking lot sublease allowed her to adjust rent if GRI sold the restaurant or if she lost her membership interest in GRI. She believed that it was fair to receive market rent in such cases. A dispute over GRI's management led to a lawsuit against McManus, which was settled in February 2006 with a Purchase of Interest Agreement, effective February 8, 2006, that triggered the rent revision, establishing annual payments of $70,000 and $87,500 for subsequent years. After the purchase on March 10, 2006, rents were adjusted accordingly.

In early 2008, GRI and Texas Roadhouse Holding (TRH) sought Ms. Porter’s approval for a sub-sublease, assuring her that no transfer would occur and that her rental payments would continue unchanged. Relying on these assurances, she approved the sub-sublease, and in July 2008, TRH subleased the restaurant and parking lot from GRI, with all parties agreeing on the rental amounts. However, contrary to her assertions, McManus and GRI now contend that the sub-sublease constituted a transfer that triggered another revision of the original Parking Lease’s rent provision.

Ms. Porter alleged that GRI withheld material information regarding the GRI/TRH sub-sublease, which influenced her consent to the transaction. She argued that had she known the withheld information, she would not have approved the sub-sublease documents. Consequently, she sought to rescind her approval of the July 2008 sublease to Texas Roadhouse (TRH), asserting that the rent revision clause in the Original Parking Lot Sublease could only be triggered once, which occurred with the Purchase of Interest Agreement executed on February 8, 2006. Porter claimed entitlement to specific performance compelling Mr. McManus to execute necessary agreements to uphold the Purchase of Interest Agreement and contended that McManus/GRI is estopped from altering the agreed fair market value rent.

Porter also argued that GRI could not compel her to activate a provision in the original sublease created for her benefit over two years after her departure from GRI. She requested the court to interpret the Amended Parking Lot Sublease based on prior actions establishing the rent at her interest sale time. Alternatively, she sought a rent adjustment to match what TRH pays GRI or a reformation of documents to align with the Purchase of Interest Agreement, or rescission of her approval of the 2008 sublease.

GRI responded with an Answer and filed a Motion to Amend an Amended Complaint, modifying the prayer for relief but not introducing a new cause of action. GRI sought specific performance retroactive to her alleged breach on September 8, 2008, or damages to restore its position had the breach not occurred. Porter also filed a Motion to Amend her Answer and Counterclaim, based on new facts discovered about the GRI-TRH agreement, leading to TRH and Robert McManus being added as Third Party Defendants. The Trial Court permitted both Motions to Amend, and after trial, issued a Final Judgment on November 30, 2011, ruling that GRI could not seek a rent revision and dismissing all GRI claims. Consequently, Porter’s Counterclaim against GRI and Third-Party Complaints against TRH and McManus were also dismissed, with GRI responsible for costs and all parties’ requests for attorney fees denied. GRI subsequently filed a Notice of Appeal, raising issues regarding the enforcement and interpretation of the rent revision provision in the Parking Lot Sublease.

The excerpt addresses two key issues: whether the trial court erred by ignoring Section 7.01 of the Parking Lot Sublease and whether it erred in denying Ms. Porter’s request for attorneys’ fees. In the context of a non-jury trial, the appellate court reviews the trial court’s findings of fact de novo, presuming correctness unless the evidence suggests otherwise. Credibility assessments made by the trial court are given great deference, and its legal conclusions are reviewed without such a presumption.

The appellate court's task involves interpreting the Parking Lot Sublease and Amended Parking Lot Sublease, guided by established rules of contract interpretation. The intent of the parties is determined by the ordinary meaning of the contract language, and this intent is treated as a question of law when the contract's words are clear and undisputed. If language ambiguity exists, further rules of construction are applied to ascertain the parties' intent, with ambiguities typically construed against the drafter. The parol evidence rule restricts the use of external evidence to alter or contradict a valid, complete, and unambiguous written contract unless fraud or mistake is claimed.

In Bradford v. Sell, the Tennessee Court of Appeals addressed the ambiguity in Section 1.07 of the Parking Lot Sublease concerning the rent revision procedure. The Trial Court found conflicting interpretations regarding whether the rent revision could occur once or multiple times. The ambiguity stemmed from the term "sale" of the Texas Roadhouse restaurant, as the document lacked definitions for “sold,” “transferred,” or “sale of the restaurant.” GRI argued that "sale" encompassed the transfer of assets and operational rights, while Ms. Porter contended that no actual sale occurred since GRI continued to derive profits and retain ownership of the building. The Trial Court concluded that both interpretations were reasonable, confirming the ambiguity of the provision. Additionally, the Court noted a potential conflict between the Parking Lot Sublease and the Interest Purchase Agreement, which allowed for adjustments to rent received by Ms. Porter from GRI.

The Amended Sublease from March 10, 2006, altered the rent from $100 per year to a significantly higher amount but did not restrict future rent revisions to only upward adjustments. The Court noted a conflict between the original sublease, which implied upward-only rent revisions, and the amended version, which allowed for potential downward adjustments based on appraisals. This ambiguity led the Trial Court to examine the parties' actions to clarify the intent behind the provisions. 

The Trial Court determined that Section 1.07 of the Parking Lot Sublease was ambiguous, as it could be interpreted in multiple ways. It supported the view that rent adjustments were a one-time event triggered by either the sale of the restaurant or Ms. Porter losing her interest in GRI. However, GRI's interpretation that Section 1.07 remained applicable after Ms. Porter sold her interest was also deemed reasonable.

Following the sale, the parties negotiated a new rent without resorting to an appraisal, leading to the Amended Parking Lot Sublease, which referenced Section 1.07. The Trial Court concluded that the parties treated the appraisal requirement as no longer relevant. Testimony indicated that GRI's attorney assured Ms. Porter’s attorney that the changes would not affect the existing rent arrangements. Additionally, Ms. Porter recalled a conversation with GRI's minor partner about consent for a sublease, during which she was reassured that "nothing was going to change." The Trial Court's findings, based on the conduct of the parties and their testimony, were upheld as reasonable interpretations of the ambiguous provisions.

Mr. Hart, the CEO of TRH, assured Ms. Porter that her sublease would not change, leading her to believe that rent would remain consistent with the amended sublease. Ms. Porter consented to the sub-sublease based on these assurances and the alignment of rent schedules between her sublease and the sub-sublease. The Trial Court noted that GRI's 2008 financial statements projected future rent payments to Ms. Porter, matching the amended sublease's rent schedule, and showed no anticipated changes due to the transaction with TRH. 

The Trial Court highlighted GRI's attempt to revise rent payments under the sub-sublease due to discrepancies, indicating that the original sub-sublease did not account for escalators in rent payments owed to Ms. Porter, resulting in GRI receiving less rent than obligated. The intent among the parties was that GRI would not pay more to Ms. Porter than TRH paid to GRI. An agreement was reached to adjust the sub-sublease rent to align with the parking lot sublease, with projections for rent payments extending to 2025.

The Trial Court concluded that the actions of GRI and TRH demonstrated a mutual understanding that the rents under both agreements should correspond, and that Section 1.07’s rent revision procedure was effectively deemed inapplicable. The Court deferred to the Trial Court's credibility assessment of witness Mr. McManus, who suggested revising the rent post-sale of the restaurant, finding his testimony not credible. The Court upheld the Trial Court’s decision not to enforce Section 1.07 of the Parking Lot Sublease and noted that any ambiguity regarding the 2008 transaction should be construed against Ms. Porter, as she was the drafter of the relevant sections.

Doubtful language in contracts is interpreted against the drafter, particularly when the drafter seeks to use such language to undermine the contract's operation. The court affirmed the Trial Court's finding that actions of the parties indicated they did not intend for the rent revision provision in Section 1.07 to apply in 2008, rather than focusing on whether the term "sale" was ambiguous. The appellant's argument regarding estoppel was dismissed, as the Trial Court ruled that misrepresentations by GRI prevented them from enforcing Section 1.07. Additionally, the Trial Court denied Ms. Porter's request for attorneys' fees despite her being the prevailing party, citing the ambiguity of the lease terms as a reason not to award fees. Tennessee law permits recovery of attorney’s fees in contracts, and a trial court cannot arbitrarily refuse to consider such provisions. However, the Trial Court justified its denial based on the reasonable basis for each party's interpretation of the ambiguous contract terms.

The trial court lacked discretion in deciding whether to award attorney's fees based on the contract stipulating that the prevailing party is entitled to recover reasonable attorney's fees. However, the trial court does have discretion in determining the amount of those fees. In this case, the lease required the non-prevailing party to pay the attorney’s fees of the prevailing party when enforcing the lease terms. Despite the trial court's reasoning to deny Ms. Porter’s request for fees as an attempt at fairness, the law mandates otherwise. Consequently, the appellate court remands the case to the trial court to set a reasonable amount for Ms. Porter’s attorney's fees. The trial court’s dismissal of GRI’s claims against Ms. Porter is affirmed, but the denial of her request for fees is modified, with instructions to determine the reasonable amount owed. The costs of the appeal are assessed to Gatlinburg Roadhouse Investors, LLC.