ITT Educational Services Inc v. AP Consolidated Theaters II Limited Partnership
OPINION AND ORDER granting AP's 29 motion for summary judgment as to Count IV and Count V but otherwise denied; and granting in part and denying in part ITT's 36 motion for leave to file a second amended complaint. ITT will be permit ted to file a second amended complaint. Because the Court has granted summary judgment on ITT's claim for breach of an agreement to negotiate in good faith and that AP breached the 2010 lease by giving a tour of the building to LISA Academy representatives, those claims must be deleted, and then the second amended complaint may be filed. Signed by Judge J. Leon Holmes on 7/19/2016. (ljb)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
ITT EDUCATIONAL SERVICES, INC.
No. 4:16CV00055 JLH
AP CONSOLIDATED THEATRES II
OPINION AND ORDER
This case concerns a commercial lease. The central issue is whether a letter agreement to
renew the lease but for less space than during the original term, subject to the execution of a formal
lease amendment, is enforceable when no formal lease agreement was ever executed.
The parties are ITT Educational Services, Inc., and AP Consolidated Theatres II Limited
Partnership. They entered into a lease in October of 2010 for ITT to rent an entire building owned
by AP. The lease term ended May 31, 2016. In early 2015 the parties began negotiating for the
renewal of the lease, but ITT wanted to renew for only part of the building. In September of 2015,
ITT wrote a letter proposing to renew the lease for five years for approximately half of the building.
That proposal stated several terms of the renewal but also that it was subject to “a mutually
agreeable lease amendment.” AP accepted the proposal. While the parties were exchanging drafts
of a lease amendment, AP entered into a lease with Little Scholars of Arkansas Foundation, d/b/a
LISA Academy, for the entire building and informed ITT it would be required to vacate the building
by May 31, 2016.
On February 2, 2016, ITT commenced this action against AP seeking a declaratory judgment,
injunctive relief and specific performance. ITT alleged one claim for breach of contract and one for
promissory estoppel. In an amended complaint, Count I sought a declaratory judgment that AP
breached an agreement to execute an amendment to the lease agreement; Count II alleged that the
letter agreement formed a contract that AP breached by entering into an agreement to lease the
building to LISA Academy and sought injunctive relief with an alternative request for damages;
Count III alleged a claim for promissory estoppel; Count IV alleged that AP breached an agreement
to negotiate in good faith; and Count V alleged that AP breached the original lease by showing the
property to representatives of LISA Academy without giving ITT notice of the intrusion. On
February 24, this Court granted a motion to expedite the proceedings and scheduled an evidentiary
hearing for March 21, 2016, to address whether ITT was entitled to specific performance, an
injunction, or other equitable relief. Before the evidentiary hearing, however, ITT found an
alternative space to rent, which rendered its claims for equitable relief moot, so the hearing was
AP has now filed a motion for summary judgment arguing that ITT’s claims for specific
performance, injunctive relief and declaratory relief are moot; the statute of frauds prevents any
contract claim based on the letter agreement; the promissory estoppel claim is without merit;
Arkansas does not recognize a cause of action for failure to negotiate in good faith; and the breach
of contract claim for showing the property is trivial and lacks merit. ITT has responded under seal
to AP’s motion for summary judgment and conceded the claims for specific performance, injunctive
relief and declaratory relief.1
ITT has filed a motion for leave to file a second amended complaint that would remove the
claims for specific performance, injunctive and declaratory relief but would add a claim for fraud
and seek compensatory and punitive damages. AP opposes that motion.
ITT’s claims for specific performance, injunctive relief, and equitable relief are therefore
For the following reasons, AP’s motion for summary judgment is granted in part and denied
in part, and ITT’s motion for leave to file a second amended complaint likewise is granted in part
and denied in part.
I. SUMMARY JUDGMENT
THE UNDISPUTED FACTS
ITT and AP entered into a lease agreement in 2010. Document #15-1. Pursuant to that lease,
ITT rented from AP the 31,796 square foot building located at 12200 Westhaven Drive, Little Rock,
Arkansas 72211, along with the 5.8735 acres of land on which it sits. Id. at 6. The initial lease term
was for five years, expiring on May 31, 2016, and included an option to extend for an additional five
years. Id. at 7 and 31.
In or around March of 2015, the parties began to negotiate for another five year term. See
Document #15-2. On March 10, 2015, Zachary Lee, ITT’s Director of Real Estate, met with Jay
Anthony, the President of AP, to view the building and discuss a potential lease renewal. Id. at 10.
Over the course of the next six months, the parties engaged in negotiations via emails and phone
calls. See Documents 15-2; 15-3; 15-4; 15-5; 15-7; 15-8; 15-10; 15-11; 15-12; 15-13; 15-20; 15-21;
15-22. The negotiations were conducted between Lee and Brian Shiu, a Vice President of AP. Part
of the negotiations involved reducing the rented space to half of the space of the building. Document
#15-2 at 8. The negotiations included a reconfiguration of the space since ITT would occupy only
one-half of the building. On August 13, 2015, Lee sent to Shiu a space plan for ITT to lease 16,173
rentable and 15,073 usable square feet for five years beginning on June 1, 2016. Document #11-20
at 2; Document #15-6. On September 9, 2015, Lee sent a letter to Shiu proposing terms for a lease
amendment whereby ITT would lease 16,173 rentable and 15,073 usable square feet for another five
years beginning on June 1, 2016, “subject to ITT Executive and Real Estate Committee approvals
and to a mutually agreeable Lease Amendment.” Document #15-11 at 1. This proposal was
accepted by AP on the day it was sent, as evidenced by Anthony’s signature of that date. Id. at 3.
On September 18, 2015, Lee notified Shiu that ITT’s executive committee had approved the
proposal. Document #15-13.2
The letter agreement identified the property address as 12200 Westhaven Drive and the space
requirements as 16,173 rentable and 15,073 usable square feet. Document #15-11. In addition to
this description of the space requirements, the letter agreement provided for a renewal term of five
years; annual rent of $13.25 per square foot in the first year, escalating by a stated amount in each
year of the five-year term; improvements to be performed by the tenant with an improvement
allowance of $10.00 per rentable square foot; approval by AP of the permit ready plans and
specifications; a renewal option; a provision stating who would pay costs associated with the
common areas; a provision for signage; a provision stating that AP would not pay any brokerage
fees or commissions; and a confidentiality provision. The letter agreement did not contain an
explicit provision regarding outdoor space. See id. The letter agreement stated that any terms not
modified by the letter agreement “shall remain as set forth in the Lease.” Id. at 2 ¶ 10. The letter
agreement also stated that “Landlord and Tenant shall execute a mutually acceptable amendment
to the Lease.” Id. at 2 ¶ 11.
Because persons with authority for both ITT and AP accepted the proposal stated in the
letter from Lee to Shiu, we will refer to it henceforth as “the letter agreement.” We will refer to the
original lease, executed in 2010, as the lease.
On September 18, 2015, Lee informed ITT’s real estate broker, Vaughn McQuary, that ITT’s
deal with AP was completed. Ex. TT McQuary Dep. 29:5-16.3 ITT had been in discussions for the
University of Phoenix space at Kirkpatrick Plaza. Lee Dep. 57:4-13. McQuary informed two
persons that ITT had renewed with their current landlord. Ex. UU.
On September 28, 2015, Lee submitted ITT’s draft of the formal lease amendment to Shiu.
Ex. VV. On October 9 Shiu returned a redlined and edited version of the Proposal. Ex. WW. On
October 23 Lee responded with edits. Ex. XX. In October of 2015, the parties began discussions
regarding damage to the exterior of the building. Lee Dep. 90:1-91:24; 111:10-115:4. The parties
never came to an agreement on the issue. Id. On November 6, 2015, Lee provided another draft of
the lease amendment. Document #15-14.
On November 17, Anthony was contacted by Maury Mitchell, LISA Academy’s commercial
real estate agent, regarding the building and Anthony instructed Shiu to follow up with Mitchell.
Ex. YY. Shiu reported that Mitchell had a charter school interested in the entire building. Id. Shiu
told Mitchell that nothing had been executed yet with ITT and Anthony told Shiu to “push this”.
Id. A meeting was set up by the end of the day for LISA officials to tour the ITT building. Id. On
November 18, AP’s real estate broker sent an email to the principal of LISA Academy asking
whether it would be interested in leasing the space at 12200 Westhaven Drive because “ITT has
been occupying the building [and] is downsizing.” Document #15-23 at 1. On November 20, LISA
Academy officials toured the building. Document #15-24. ITT assumed the tour was to show the
other half of the building and find a complementary tenant. Pilgreen Dep. 55:7-56:3. Following the
Exhibits filed under seal are identified on paper copies by letters of the alphabet and will
be so identified here.
tour, Shiu emailed Mitchell and stated “that if LISA is interested in moving forward it is imperative
that it be done quietly and as quickly as possible.” Document #15-24 at 2.
On November 20, Resa Gilmore, a Vice President at AP, sent Anthony an email stating:
“ITT’s deadline to give us notice if they want to exercise their option to renew is 12/2/15. That is
only 11 days away.”4 Ex. AAA. Anthony responded “Good.” Id. On November 23 Lee sent an
email to Shiu asking whether there were any updates. Document #15-15 at 4. Shiu responded and
said that “travel and extremely complicated closings” had prevented AP from having time to
dedicate to that property. Id. On November 30 Lee sent another email to Shiu asking whether there
was anything he could do to speed along AP’s review. Id. at 3.
By December 1, AP had presented a letter of intent to LISA Academy for consideration.
Document #15-25. The parties negotiated the terms and moved quickly due to the situation with
ITT. Document #15-26.
On December 4 and 7, Lee sent emails asking when he could call Shiu and Gilmore.
Document #15-16 at 1-2. On December 7 Shiu responded and stated he was out of town and would
be back in the office on December 9. Id. at 1. On December 10 Lee followed-up after not hearing
from Shiu and Shiu said he was still trying to work on some language before calling. Document
#15-17 at 1.
On December 11, AP entered into a letter of intent with LISA Academy. Document #15-28.
The letter stated: “This letter serves only to outline the basic terms from which a lease might be
prepared. Only a written lease executed by both parties will bind the Landlord and the Tenant. No
proposal, counter proposal, letter, or oral statement will be construed as binding on the Landlord.”
The lease provided that to exercise the option, ITT had to give AP notice “at least one
hundred eighty (180) days before the Lease Term ends.” Document #15-1 at 32 ¶ 10.01(b)(ii).
Id. at 5.5 On December 14, AP submitted a redlined, edited version of a proposed lease agreement
with LISA Academy to LISA Academy’s attorney. Document #15-29.
Also on December 14 Shiu sent Lee an email stating there was one section of the amendment
that still troubled AP, i.e., the part dealing with “significant damage.” Document #15-18 at 5. Prior
to sending Lee the email, Shiu sent a draft version of the email to Gilmore and the original draft
ended with a request to ITT to, “Please reconsider this issue and let us know your thoughts.” Ex.
EEE. That request was left out of the email sent to Lee. Document #15-18 at 5. Lee responded on
December 18 with ITT’s position on the exterior damage issue. Id. at 4.
AP and LISA Academy entered into a Lease Agreement on December 18, 2015. Document
#15-30. On the same day, LISA Academy’s superintendent provided the Lease Agreement to the
Executive Director of Arkansas Public School Resource Center and stated that AP wanted to keep
the lease agreement quiet for seven days. Document #15-31.
On December 22, Shiu forwarded Lee’s December 18 email to Gilmore and asked, “Is
anyone going to respond to this [or are] we just sitting on it?” Ex. HHH. She responded: “Jay asked
this morning when we could tell them. That would be Monday.” Id. Lee followed-up on December
28 and January 5, 2016 and asked if they could agree to the exterior damage provision of 10%. Ex.
III at 1-2; Ex. JJJ at 1. The December 28 email was forwarded to Shiu and Gilmore by Anthony and
he stated, “Please do not respond until next week.” Ex. III. On January 4, 2016 Shiu asked
Anthony, “Is it time someone responds to ITT?” Id. Lee left a voicemail for Shiu on January 11,
2016. Ex. KKK.
The letter agreement between AP and ITT contained no such provision.
On January 11, 2016, LISA Academy informed AP that it had submitted its amendment
application to expand its charter facility at 12200 Westhaven Drive. Ex. LLL. Later that day
Anthony sent Lee an email that stated, “it looks as though we are not going to be able to agree to
renewal terms. Please plan to vacate the facility according to the terms of our existing lease.”
Document #15-18 at 1.
SUMMARY JUDGMENT STANDARD
A court should grant summary judgment if the evidence demonstrates that there is no genuine
dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56. The moving party bears the initial burden of demonstrating the absence of a genuine
dispute for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d
265 (1986). If the moving party meets that burden, the nonmoving party must come forward with
specific facts that establish a genuine dispute of material fact. Matsushita Elec. Indus. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986); Torgerson
v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). A genuine dispute of material
fact is presented only if the evidence is sufficient to allow a reasonable jury to return a verdict in
favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505,
2510, 91 L. Ed. 2d 202 (1986). The court must view the evidence in the light most favorable to the
nonmoving party and must give that party the benefit of all reasonable inferences that can be drawn
from the record. Spencer v. Jackson Cnty. Mo., 738 F.3d 907, 911 (8th Cir. 2013). If the
nonmoving party fails to present evidence sufficient to establish an essential element of a claim on
which that party bears the burden of proof, then the moving party is entitled to judgment as a matter
of law. Pedersen v. Bio-Med. Applications of Minn., 775 F.3d 1049, 1053 (8th Cir. 2015).
WHETHER THE MOTION FOR SUMMARY JUDGMENT IS PREMATURE
ITT argues that the summary judgment motion is premature because discovery has not been
completed. Rule 56(b) provides that “a party may file a motion for summary judgment at any time
until 30 days after the close of all discovery” unless the court provides otherwise. Fed. R. Civ. P.
56(b). “Although discovery need not be complete before a case is dismissed, summary judgment
is proper only if the nonmovant has had adequate time for discovery.” Robinson v. Terex Corp., 439
F.3d 465, 467 (8th Cir. 2006).
The nonmoving party must make a showing, however, that discovery has been
inadequate. Rule 56(f) allows a party to request a delay in granting summary
judgment if the party can make a good faith showing that postponement of the ruling
would enable it to discover additional evidence which might rebut the movant’s
showing of the absence of genuine issue of material fact.
Id. (internal citations omitted). ITT has made no showing that discovery is inadequate. It should
be noted that the parties were prepared to try the case on the merits in March. The summary
judgment motion is not premature.
STATUTE OF FRAUDS
AP argues that summary judgment should be granted on Count I, the breach of contract
claim, because the letter agreement does not comply with the statute of frauds. Though AP does not
explicitly assert that the letter agreement lacks the elements of a contract, some of its arguments
suggest as much.
The essential elements of a contract are (1) competent parties, (2) subject matter, (3)
legal consideration, (4) mutual agreement, and (5) mutual obligation. This court
cannot make a contract for the parties but can only construe and enforce the contract
that they have made; if there is no meeting of the minds, there is no contract.
Moreover, the terms of a contract cannot be so vague as to be unenforceable. The
terms of a contract are reasonably certain if they provide a basis for determining the
existence of a breach and giving an appropriate remedy.
City of Dardanelle v. City of Russellville, 372 Ark. 486, 490-91, 277 S.W.3d 562, 565-66 (2008)
(internal citations omitted). A contract may be made through an exchange of letters, and reference
to a future formal contract does not prevent the letters from creating a binding agreement. Skeen v.
Ellis, 105 Ark. 513, 152 S.W. 153, 154 (1912); see also Little v. Miller, 212 Ark. 356, 359-60, 205
S.W.2d 475, 476-77 (1947) (“Where a contract is actually entered into, whether by correspondence
or by word of mouth, the agreement becomes effective at once, although it was expected that the
terms of the contract would afterwards be reduced to writing and signed.”). All of the elements of
a contract are present in the letter agreement.
The Arkansas statute of frauds states:
Unless the agreement, promise, or contract, or some memorandum or note thereof,
upon which an action is brought is made in writing and signed by the party to be
charged therewith, or signed by some other person properly authorized by the person
sought to be charged, no action shall be brought to charge any:
(5) Person upon any lease of lands, tenements, or hereditaments for a longer term
than one (1) year.
Ark. Code Ann. § 4-59-101(a)(5). Thus, a contract to lease land for a period longer than one year
falls within the statute of frauds and must be in writing.
AP contends that the letter agreement fails to satisfy the statute of frauds because it lacks a
definite description of the real property to be leased. The entire Westhaven property includes a
building and 5.8735 acres. The letter agreement did not provide for leasing the entire building, only
a portion of it, i.e., 16,173 rentable and 15,073 usable square feet, and it did not mention the land
outside the building. Document #15-11.
An essential element of the written contract is a definite description of the land that is the
subject matter of the agreement. Sossamon v. Davis, 271 Ark. 156, 161, 607 S.W.2d 405, 409 (Ark.
App. 1980). Even if the parties definitely understood what property was to be conveyed, there must
still be a writing with a definite description or the contract is unenforceable. Routen v. WalthourFlake Co., 221 Ark. 354, 357-58, 253 S.W.2d 208, 210 (1952). If a writing provides a key–a means
by which the land can be identified–then “it need not describe the property with the particularity of
a deed.” Price v. Willbanks, 2009 Ark. App. 849, at 5, 374 S.W.3d 28, 32 (citing Boensch v.
Cornett, 267 Ark. 671, 674, 590 S.W.2d 55, 57 (Ark. Ct. App. 1979)). Some language in the
contract itself must furnish the key whereby the land can be definitely located and described.
Routen, 221 Ark. at 356, 253 S.W.2d at 209. If the contract provides such a key, extrinsic evidence
may be used to satisfy the statute of frauds. Price, 2009 Ark. App. at 5, 374 S.W.3d at 32. “Oral
evidence may be resorted to only for the purpose of identifying the description contained in the
writings but not for the purpose of locating the land and supplying the description which the parties
have omitted from the writings.” Dev. & Constr. Mgmt., Inc. v. City of North Little Rock., 83 Ark.
App. 165, 170, 119 S.W.3d 77, 81 (2003).
Here, the letter agreement provided the property’s street address, 12200 Westhaven Drive,
and stated that the lease was for 16,173 rentable and 15,073 usable square feet. Document #15-11
at 1 ¶¶ 1 and 3. “A designation of the premises in a contract or memorandum by street number
ordinarily proves sufficient to satisfy the statute even though parol evidence must be resorted to in
following the key furnished.” Creighton v. Huggins, 227 Ark. 1096, 1101, 303 S.W.3d 893, 897
(1957). If the letter agreement had been to lease the entire Westhaven property, the description of
12200 Westhaven Drive undoubtedly would have been sufficient because the letter agreement
incorporated the original lease by reference, and a legal description of the property at 12200
Westhaven Drive was an exhibit to the original lease. Document #15-1 at 38.
The letter agreement, however, provided for ITT to lease only a portion of the building, and
it did not specify which portion. Nevertheless, the letter agreement furnished a key by which the
portion of the building to be rented could be definitely ascertained. As noted, the letter agreement
specified that ITT would lease 16,173 rentable and 15,073 usable square feet. Document #15-11
at 1. Those figures correspond exactly to the space plan sent by Lee to Shiu on August 13, 2015.
Document #11-20 at 2; Document #15-6. AP internally referenced the August 13 space plan as the
plan that the parties “agreed upon.” Ex. KK and LL; Shiu Dep. 85:5-87:9 (explaining the context
of Exs. KK and LL). This August 13 space plan definitely described the portion of the building that
was to be leased by AP to ITT.
Still, the property at 12200 Westhaven Drive covers more than the building; it also includes
the outside acreage. “[W]here only a smaller part of a larger tract is described, the description is
insufficient to comply with the statute of frauds as to a description of the entire tract.” Dev. &
Constr. Mgmt, Inc., 83 Ark. App. at 172, 119 S.W.3d at 82. The lease included not only the entire
building but also all of the approximately 5.8735 acre site on which the building sat. Document #151 at 6 ¶ 1.02. It also stated that ITT would have exclusive use of no less than 256 parking spaces.
Id. at 11 ¶ 1.06. AP argues that the letter agreement fails to describe any portion of the tract outside
the building that would be covered by the new lease. In response, ITT argues that because the letter
agreement stated all unmodified terms would remain as those in the lease, the requirement of the
statute of frauds are met because the letter agreement incorporates by reference ITT’s right to 256
parking spaces as stated in the lease. That argument prevails.
AP has presented no authority for the proposition that a written lease for a portion of a
commercial building with a provision for a specified number of on-site parking spaces must include
a legal description of the parking spaces to which the tenant is entitled in order to comply with the
statute of frauds. AP’s motion for summary judgment based on the statute of frauds is denied.
AP next argues that ITT’s promissory estoppel claim fails as a matter of law. The elements
of its claim of promissory estoppel are: (1) the defendant made a promise; (2) the defendant should
have reasonably expected the plaintiff to act or refrain from acting in reliance on the promise; (3)
the plaintiff acted or refrained from acting in reasonable reliance on the promise to its detriment; and
(4) injustice would result from refusal to enforce the promise. Fairpark, LLC v. Healthcare
Essentials, Inc., 2011 Ark. App. 146, at 12, 381 S.W.3d 852, 859; Arkansas Model Jury
Instructions–Civil 2444 (2016). “The general rule is that claims of promissory estoppel are
questions for the fact finder.” Taylor v. Eagle Ridge Developers, LLC, 71 Ark. App. 309, 313, 29
S.W.3d 767, 769 (2000). “Whether there was actual reliance . . . and whether it was reasonable is
also a question for the trier of fact.” Id. at 313, 29 S.W.3d at 770.
AP argues that the letter agreement did not constitute a promise but only a manifestation of
intent to negotiate further, and that ITT, as a sophisticated entity, could not reasonably rely upon the
letter agreement because it did not satisfy the statute of frauds. The Court has already held that the
letter agreement contains all the essential elements of a contract, so it did include a promise.6
Likewise, the Court has already held that the letter agreement complied with the statute of frauds,
so ITT could reasonably rely upon it.
Promissory estoppel is a basis for recovery when the elements of a contract are not present.
Superior Fed. Bank v. Mackey, 84 Ark. App. 1, 27, 129 S.W.3d 324, 341 (2003). While a party may
not recover for the same loss for both breach of contract and promissory estoppel, the two theories
may be pursued in the alternative. See id. In any event, AP has not argued that ITT is precluded
from pursuing a promissory estoppel claim in the alternative to its breach of contract claim.
AP also argues that ITT’s ability to lease space in Kirkpatrick Plaza defeats any claim that
ITT has been injured or suffered any form of detriment. AP notes that the rent at Kirkpatrick Plaza
is lower than the rent at 12200 Westhaven Drive and that ITT does not have to design and complete
construction as it would have had to do at 12200 Westhaven Drive. Therefore, AP contends, ITT
is actually in a better position than it would have been had the parties consummated the lease
amendment for 12200 Westhaven Drive. This argument is unpersuasive. Although ITT may be
paying lower rent and may not have to do construction, ITT may have incurred damages from
relocation costs, moving expenses, and expenses from ensuring that the new building fits ITT’s
needs. Whether ITT has been damaged is a question for the jury.
AGREEMENT TO NEGOTIATE IN GOOD FAITH
AP next contends that Count IV–“breach of agreement to negotiate in good faith”–is not
recognized as a cause of action in Arkansas. If ITT is alleging that AP failed to execute the lease
amendment as agreed, that allegation is part of the breach of contract claim. If ITT is alleging that
AP violated an implied duty to negotiate in good faith, such a cause of action does not exist under
Arkansas law. Country Corner Food and Drug, Inc. v. First State Bank and Trust Co. Of Conway,
Arkansas, 332 Ark. 645, 655, 966 S.W.2d 894, 899 (1998) (“The fact that every contract imposes
an obligation to act in good faith does not create a cause of action for a violation of that obligation,
and . . . this court has never recognized a cause of action for failure to act in good faith.”). Count IV
TOUR OF THE BUILDING
The next issue is whether AP is entitled to judgment as a matter of law on ITT’s claim that
it breached the lease by giving a tour of the building to representatives of LISA Academy. AP
argues that its entry into the building at 12200 Westhaven Drive without notice did not violate any
provision of the lease because there was no provision explicitly forbidding AP from entering without
notice. AP points out that the lease expressly permitted AP to enter the property for certain listed
reasons, but it did not expressly forbid entry for other reasons. AP argues that it could enter for
other reasons so long as the entry did not “materially and substantially interefere with the conduct
of Tenant’s business.” Document #15-1 at 30 ¶ 9.03(c). And even if it did violate the lease, AP
argues this was not a material breach. In contrast, ITT argues that the only time AP had the right
to show prospective tenants the building without prior notice was in the last six months of the lease
term. Document #15-1 at 30 ¶ 9.03(a). ITT argues this was a material breach because it led to AP
entering into a competing lease with LISA Academy that ultimately led to an anticipatory
repudiation of the Proposal.
The lease provided that “[a]t any reasonable time during the last six (6) months of the Lease
term, Landlord . . . shall have the right to enter the Leased Premises during Tenant’s business hours,
without notice to Tenant, for the purpose of showing the Leased Premises.” Document #15-1 at 30
¶ 9.03(a). The lease also provided that the Landlord had the right to enter during reasonable hours
with reasonable prior notice for the following reasons: “(i) inspection, cleaning, or making repairs;
(ii) making such alterations or additions as Landlord may deem necessary or desirable; (iii)
installation of utility lines servicing the Leased Premises; (iv) determining Tenant’s use of the
Leased Premises; or (v) determining if a Tenant Default has occurred.” Id. The lease then stated:
“Notwithstanding anything to the contrary in Subsections 9.03(a) and (b) above if Landlord’s entry
materially and substantially interferes with the conduct of Tenant’s business . . . the Base Rent will
abate in proportion to the extent of the interference.” Id. at 30 ¶ 9.03(c). AP argues that this
provision means that it could enter provided it did not materially and substantially interfere with
ITT’s business, but the plain meaning of the lease does not support that interpretation. Instead, this
provision means that if AP entered for one of the permitted reasons but interfered materially and
substantially with ITT’s business, then the rent would be abated, even though the entry was
Nevertheless, AP’s motion on this claim will be granted because ITT has presented no
evidence that damages resulted from this breach. “A person may be liable for breach of contract if
the complaining party can prove the existence of an agreement, breach of the agreement, and
resulting damages.” Foreman School Dist. No. 25 v. Steele, 347 Ark. 193, 202, 61 S.W.3d 801, 807
(2001) (citing Ultracuts Ltd. v. Wal-Mart Stores, Inc., 343 Ark. 224, 231-32, 33 S.W.3d 128 (2000)).
“[T]o be recoverable, damages must have been, in a legal sense, caused by the wrongful act;
typically, more certainty is required for a contract claim than for a tort claim.” Spann v. Lovett &
Co., Ltd., 2012 Ark. App. 107, at 17, 389 S.W.3d 77, 91 (citing Howard W. Brill, Arkansas Law of
Damages § 4.5 (5th ed. 2004)). “In general, damages recoverable for breach of contract are those
damages that would place the injured party in the same position as if the contract had not been
breached . . . . Damages must arise from the wrongful acts of the breaching party.” Id. ITT argues
that its damages are the costs of finding a new building due to AP’s anticipatory repudiation of the
letter agreement, but those damages did not flow from breach of the lease; they are due to the breach
of the letter agreement. ITT has presented no evidence that damages resulted from this breach, so
it has failed to present evidence on an essential element of this claim. Count V is dismissed.
AP next contends that even if the letter agreement is enforceable, ITT’s damages are limited
to general and nominal damages because Arkansas follows the tacit agreement rule. The issue
hinges on whether ITT’s claim is that AP unlawfully evicted ITT or that AP failed to deliver
possession of the premises. Arkansas “is committed to the rule that the measure of damages in an
action by lessee against a lessor for failure to deliver possession of leased premises is the difference
between the rent reserved and the value of the premises of the term.” Morrison v. Weinstein, 151
Ark. 255, 261, 236 S.W. 585, 586 (1921). “While ordinary or general damages follow as a matter
of course for a breach of the covenant or contract for possession of leased premises, special damages
do not. Special damages are allowable only in case they were in contemplation of the parties at the
time of the execution of the lease in the event a breach of the covenant for possession should occur.”
Id. But, “[w]here a tenant is unlawfully evicted, the tenant is entitled to recover as damages
whatever loss results to him because of the wrongful act.” Burdan v. Walton, 286 Ark. 98, 101, 689
S.W.2d 543, 545 (1985). In this context, “[e]viction means interfering with the tenant’s enjoyment
of the premises.” Id., 286 Ark. at 100, 689 S.W.2d at 545.
ITT was in possession of the premises and had been for approximately five years. The letter
agreement provided for an amendment to the lease, not a new lease. Consequently, ITT’s claim is
that it was wrongfully evicted, not that AP failed to deliver possession of the premises. Therefore,
AP “is entitled to recover as damages whatever loss results to [it] because of the wrongful act.” Id.,
286 Ark. at 101, 689 S.W.2d at 545. AP’s motion for summary judgment on this issue is denied.
II. LEAVE TO FILE A SECOND AMENDED COMPLAINT
As noted above, ITT has moved for leave to file a second amended complaint. The proposed
second amended complaint omits the claims for equitable relief and restates the claim for breach of
contract based on the contention that the letter agreement is an enforceable contract, the claim that
ITT breached the contract when it gave a tour to representatives of LISA Academy, the claim that
ITT breached an agreement to negotiate in good faith, and the promissory estoppel claim. It also
adds a claim for fraud. AP opposes the motion for leave to amend, arguing that permitting the
amendment would be futile because the only new claim, i.e., the fraud claim, is inconsistent with
the undisputed facts.
STANDARD FOR A MOTION FOR LEAVE TO AMEND
Federal Rule of Civil Procedure 15(a)(2) provides that a court should give leave to amend
freely when justice so requires. Leave to amend need not be given, however, if the amendment
would be futile. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962).
Normally, saying that the amendment would be futile “means the district court has reached the legal
conclusion that the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6)
of the Federal Rules of Civil Procedure.” Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519
F.3d 778, 782 (8th Cir. 2008). Here, however, AP argues, based on the factual record that exists as
a result of the motion for summary judgment and prior motions, that ITT’s proposed fraud
claim–which is the only new claim in the proposed second amended complaint–could not survive
a motion for summary judgment under Rule 56. Both parties have briefed the futility issue as though
it is governed by Rule 56 standards, so the Court will address it under those standards.7
Cf. Robertson v. White, 111 F.R.D. 607, 612 (W.D. Ark. 1986) (“For obvious reasons,
courts have not undertaken a Rule 56 assessment of a proposed amendment although under a futility
THE FRAUD CLAIM
The proposed fraud claim is based on statements made by representatives of AP between
November 16, 2015, and January 11, 2016, to the effect that AP’s representatives were too busy to
focus on the draft of the leased amendment and that the exterior damage provision was a material
term that prevented AP from being able to execute the formal lease. At this time, ITT was pressing
AP to conclude the negotiations regarding the formal lease amendment.
The proposed second amended complaint assumes that the deadline for ITT to exercise its
option to extend the lease for the entire building was November 27, 2015. Document #36-1 at 21
¶ 99. The parties have briefed the futility issue on the assumption that ITT’s renewal option had to
be exercised by November 27, 2015. As noted above, AP’s internal correspondence calculated the
deadline to be December 2, 2015. See Ex. AAA. The December 2 calculation appears to be more
accurate, but nothing hinges on that five-day difference.
On November 17, 2015, LISA Academy’s real estate agent approached AP regarding leasing
the entire building, and Anthony instructed Shiu to “push this.” Ex. YY. A jury reasonably could
conclude from the evidence that from that date forward AP made it a priority to consummate a lease
agreement with LISA Academy while holding ITT at bay until the agreement with LISA Academy
could be concluded. AP and LISA Academy entered into a lease agreement on December 18, 2015.
Document #15-30. That lease agreement became public on January 11, 2016, when LISA Academy
submitted its charter amendment application to the Arkansas Department of Education, asking to
open an elementary campus at 12200 Westhaven Drive. Document #15-32. Later that day, Anthony
analysis nothing could be more feckless than to permit an action to go to trial which discovery has
shown to be virtually denuded of factual support.”).
sent an email to Lee saying, “it looks as though we are not going to be able to agree to renewal
terms. Please plan to vacate the facility according to our existing lease.” Document #15-18 at 1.
ITT’s theory is that AP lied concerning the reasons that it was not moving forward to
conclude the lease amendment (1) to prevent ITT from exercising the option to renew the entire
lease by the deadline of November 27, 2015, and (2) to keep ITT from looking for alternative space
thereafter while the lease with LISA Academy was being consummated.
AP points out that ITT alleges only one fraudulent communication before November 27,
2015. On November 23, 2015, Lee sent an email to Shiu asking if there were any updates, and Shiu
responded to Lee’s inquiry as to whether there were any updates with the following message:
“Between travel and extremely complicated closings, Resa and I have not had time to dedicate to
this. Will do our best to get back to you ASAP. Thanks.” Document #15-15 at 4. AP argues that
this statement was true, citing Shiu’s calendar, which shows that from November 23 to November 25
of 2015 Shiu was in Allentown, Pennsylvania. That argument misses the point of ITT’s fraud
theory. ITT does not contend that Shiu was not traveling and was not involved in complicated
closings; rather, ITT contends that, in the context, Shiu’s statement indicated that AP had not acted
on the lease amendment because Shiu was too busy, which was a lie: AP had not acted on the lease
amendment because it was intending to lease the property to LISA Academy.
In addition to this allegedly false statement of material fact, ITT argues that AP, in the
circumstances of this case, had a duty to disclose AP’s negotiations with LISA Academy. In support
of that argument, ITT cites Holiday Inn Franchising, Inc. v. Hotel Assocs., Inc., 2011 Ark. App. 147,
382 S.W.3d 6. There, a hotel franchisee recovered compensatory and punitive damages against the
franchisor for fraud. At the franchisor’s request, the franchisee purchased a hotel and converted it
into one of its franchises. When the franchisee agreed to purchase the hotel, it asked for a licensing
agreement of fifteen to twenty years, but the franchisor only agreed to a ten-year license, stating
“there was no reason to think that [the franchisee] would not receive a license extension at the end
of the ten years.” Id. at 3, 382 S.W.3d at 10. During the initial ten-year franchise license, however,
the franchisor developed a business plan to license the same building with a competitor after the tenyear period ended. Id. at 4, 382 S.W.3d at 10. The franchisor never disclosed this business plan.
One of the issues on appeal was whether the franchisor had a duty to disclose this business plan.
Holding that the franchisor had a duty to disclose, the court of appeals explained:
Generally, a mere failure to volunteer information does not constitute fraud.
Farm Bureau Policy Holders v. Farm Bureau Mut. Ins. Co., 335 Ark. 285, 302, 984
S.W.2d 6, 14-15 (1998). But silence can amount to actionable fraud in some
circumstances where the parties have a relation of trust or confidence, where there
is inequality of condition and knowledge, or where there are other attendant
circumstances. Id. The duty to disclose is not limited to confidential or fiduciary
relationships, as Holiday Inn suggests. See Camp v. First Fed. Savings & Loan, 12
Ark. App. 150, 154, 671 S.W.2d 213, 216 (1984). There may be a special
relationship or special circumstances requiring disclosure. Id. In determining whether
such special relationships or circumstances exist, the events surrounding the parties’
transaction may be considered. Lambert v. Firstar Bank, 83 Ark. App. 259, 265, 127
S.W.3d 523, 527-28 (2003).
In this case, substantial evidence supports the existence of a duty on Holiday
Inn’s part to disclose the Aden report to HAI. Buddy House had a long-term
relationship with Holiday Inn characterized by honesty, trust, and the free flow of
pertinent information. He testified that Bill Bradford’s assurances at the onset of
licensure in 1995 led him to believe that he would be relicensed after ten years if the
hotel was operated appropriately. Yet, despite Holiday Inn’s having provided such
an assurance to House, it failed to apprise House of an internal business plan,
developed only four years into his licensing period, that advocated licensure of
another facility instead of the renewal of his license. A duty of disclosure may exist
where information is peculiarly within the knowledge of one party and is of such a
nature that the other party is justified in assuming its nonexistence. Bridges v. United
Savings Ass’n, 246 Ark. 221, 228, 438 S.W.2d 303, 306 (1969); see also Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. First Nat’l Bank of Little Rock, 774 F.2d 909,
913-14 (8th Cir.1985). Given House’s history with Holiday Inn and the assurance he
received from Bradford, we are convinced he was justified in assuming that no
obstacles had arisen that jeopardized his relicensure.
Id. at 12-13, 382 S.W.3d at 14. Here, in addition to their five-year relationship as landlord and
tenant, AP and ITT had executed a letter agreement to extend the lease for another five years subject
to a mutually agreeable lease amendment. Document #15-11 at 1. As a part of that letter agreement,
the parties agreed “Landlord and Tenant shall execute a mutually acceptable amendment to the
Lease, based on Tenant’s Lease amendment form.” Id. at 2 ¶ 11. ITT was entitled to rely on this
manifestation of intent by AP to execute a lease amendment. By November 17, 2015, however,
instead of going forward with the lease amendment pursuant to the letter agreement with ITT, AP
was attempting to lease the entire building to LISA Academy. That AP was pursuing this alternative
was information that was peculiarly within the knowledge of AP and was of such a nature, under
the circumstances, that ITT was justified in assuming its nonexistence. Therefore, AP had a duty
to disclose to ITT that it was negotiating to lease the entire building at 12200 Westhaven Drive to
AP also argues that ITT did not rely on Shiu’s statements because it never intended to
exercise its option to renew the lease for the entire building. While there is evidence to support that
argument, there is also contrary evidence. Lee has testified by affidavit that says that if ITT had
known that AP was negotiating with LISA Academy to lease the entire building “ITT would have
likely exercised its option under ITT’s and AP’s lease agreement dated October 28, 2010 . . . to
renew the 2010 lease for the entire property by November 27, 2015, rather than be left in the
situation in which ITT was ultimately placed when it learned of LISA Academy’s lease with AP in
January 2016.” Ex. OOO. Whether this testimony is credible is for the jury, not for the Court in
ruling on summary judgment.
AP also argues that ITT’s fraud claim must fail because ITT cannot prove damages inasmuch
as ITT has secured a space for less rent than it would have been paying had it exercised its option
to renew the lease for the entire building at 12200 Westhaven Drive. That argument ignores the
possibility that ITT might have subleased the portion of the building that it did not need. The
original lease provided that ITT could not sublease all or part of the building without AP’s written
consent, “which consent shall not be unreasonably withheld or delayed by Landlord.” Document
#15-1 at 18. While the evidence may ultimately show that ITT was not damaged by its alleged
fraud, the Court cannot say that AP has met its burden of establishing, as a matter of law, that ITT
suffered no damage.
ITT’s proposed second amended complaint demands a trial by jury. AP argues that ITT has
waived its right to a jury trial by not requesting one before the proposed second amended complaint.
A party must make a demand for a jury trial no later than fourteen days after the last pleading
directed to the issue is served. Fed. R. Civ. P. 38(b)(1). “A party waives a jury trial unless its
demand is properly served and filed.” Fed. R. Civ. P. 38(d). Once the right is waived, it may be
revived only where new issues are raised and only as to those new issues. In re Yukon Energy
Corp., 138 F.3d 1254, 1260 (8th Cir. 1998). If the essence of an allegation does not change, then
the right to a jury trial is not revived. New issues are raised where the amended complaint
substantially differs from prior pleadings by, for example, adding a new cause of action based on
new facts. First Wisconsin Nat’l Bank of Rice Lake v. Klapmeier, 526 F.2d 77, 80 (8th Cir. 1975).
Here, the proposed second amended complaint presents a new claim, i.e., fraud, based on
facts that were not previously alleged. Therefore, ITT has a right to a trial by jury as to the fraud
While ITT does not have a right to a trial by jury on the contract claims and promissory
estoppel, “the court may, on motion, order a jury trial on any issue for which a jury might have been
demanded.” Fed. R. Civ. P. 39(b). Under Rule 39(b), jury trials should be liberally granted when
no prejudice will result. Littlefield v. Fort Dodge Messenger, 614 F.2d 581, 585 (8th Cir. 1980).
AP has not demonstrated that it will suffer prejudice by allowing a jury trial on all issues.
Indeed, since ITT is entitled to a jury trial on the fraud claim, it only makes sense to allow the jury
to decide the other claims as well. ITT’s request for a jury trial on all claims will be granted.
For the reasons stated, AP’s motion for summary judgment is granted as to Count IV and
Count V but otherwise denied. Document #29. ITT’s motion for leave to file a second amended
complaint is granted in part and denied in part. Document #36. ITT will be permitted to file a
second amended complaint. Because the Court has granted summary judgment on ITT’s claim for
breach of an agreement to negotiate in good faith and that AP breached the 2010 lease by giving a
tour of the building to LISA Academy representatives, those claims must be deleted, and then the
second amended complaint may be filed.
IT IS SO ORDERED this 19th day of July, 2016.
J. LEON HOLMES
UNITED STATES DISTRICT JUDGE
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