Daigle Saia v. Pizza Hut of America, Inc, et al

Filing 20

ORDER granting in part and denying in part Defendants' 16 Motion to Dismiss or, Alternatively, for Summary Judgment. The motion is GRANTED with respect to Plaintiff's claims arising after the expiration of the original thirty-year term of the 1975 Lease, and the motion is DENIED with respect to Plaintiff's claims arising during the original thirty-year term of the 1975 Lease. Signed by Judge Carl Barbier. (gec, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
AGNES RUTH DAIGLE SAIA

CIVIL ACTION

VERSUS

NO: 11-776

PIZZA HUT OF AMERICA, INC.,
AND PIZZA HUT, INC.

SECTION: J (5)

ORDER AND REASONS
Before the Court are Defendants Pizza Hut of America, Inc.,
as successor-in-interest to Pizza Hut of Louisiana, Inc., and
Pizza Hut, Inc.’s, Motion to Dismiss or, Alternatively, for
Summary Judgment (Rec. Doc. 16) and Plaintiff Agnes Ruth Daigle
Saia’s Memorandum in Opposition (Rec. Doc. 18).

The Court heard

oral argument recently on this motion and took the matter under
advisement.1
PROCEDURAL HISTORY AND BACKGROUND FACTS
This case involves a dispute over the applicability of a
guaranty agreement to a commercial lease.

Plaintiff’s Complaint

arises out of a lease of property located at 1532 Gause Boulevard
in Slidell, Louisiana (“the Leased Property”), on which a Pizza
Hut restaurant was operated until January 2011.

On September 18,

1975, Plaintiff and her now-deceased husband (Lessors) entered
into a Lease Agreement (“the 1975 Lease”) for the Leased Property

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During oral argument, the Court inquired as to the
relationship between Pizza Hut of America and Pizza Hut, and
counsel for Defendants indicated that the two entities are one in
the same, or at least can be treated as such for purposes of this
motion.

with Pizza Hut of Louisiana to operate a Pizza Hut restaurant.
The original term of the 1975 Lease was for twenty years, with
two automatic renewal periods of five years each.

Thus, the

total term of the 1975 Lease was for thirty years, which was to
begin on March 1, 1977, and end on March 1, 2007.

At the time of

the execution of the 1975 Lease, Pizza Hut, the parent company of
Pizza Hut of Louisiana, executed a Guaranty with respect to the
obligations of Pizza Hut of Louisiana as the Lessee under the
1975 Lease.
Pizza Hut of Louisiana began operating a Pizza Hut
restaurant on the Leased Property, as described in the 1975
Lease, and at some point became Pizza Hut of America.

Then on

January 22, 1992, Pizza Hut of America notified Plaintiff in a
letter that it was selling all of its Pizza Hut restaurants in
the New Orleans area (including the restaurant on the Leased
Property) to Lundy Enterprises, Inc. (“Lundy Inc.”), a Pizza Hut
franchisee.

Pizza Hut of America assigned its obligations under

the 1975 Lease to Lundy Inc., and such assignment was allowed
under the provisions of the 1975 Lease.

Pizza Hut of America

also advised Plaintiff in the letter that Pizza Hut would remain
liable as Guarantor for Lundy Inc.’s obligations under the 1975
Lease, and Pizza Hut agreed to remain liable as Guarantor of
Lundy Inc.
After this assignment from Pizza Hut of America to Lundy

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Inc., Lundy Inc. began operating the Pizza Hut restaurant on the
Leased Property.

On March 4, 1998, Lundy Inc. assigned its

obligations under the 1975 Lease to Lundy Enterprises, LLC
(“Lundy LLC”), and Larry Lundy agreed to personally guarantee
Lundy LLC’s obligations under the 1975 Lease.

At the same time,

Lundy LLC granted a mortgage on the Leased Property in favor of
Whitney National Bank, and Plaintiff and Whitney entered into a
Lessor Agreement.

There is no documentation that Pizza Hut—as

Guarantor of Lundy Inc.’s obligations under the 1975 Lease after
the assignment from Pizza Hut of America—agreed to the assignment
from Lundy Inc. to Lundy LLC or expressly agreed to guarantee
Lundy LLC’s obligations under the 1975 Lease.

During oral

argument on the instant motion, the Court inquired as to the
relationship between Lundy Inc. and Lundy LLC and was informed
that they were both created by Larry Lundy, who likely
restructured his business from a corporation to an LLC for tax
purposes.
The twenty-year lease term of the 1975 Lease ended on March
1, 1997, at which time the two five-year automatic extension
periods began in March 1997 and March 2002.

Plaintiff executed

an Extract of Lease for each of these automatic extension periods
with the applicable Lessee of the 1975 Lease, which was Lundy
Inc. at first and then became Lundy LLC after the March 1998
assignment described above.

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On March 1, 2007, the original thirty-year term of the 1975
Lease expired, and on that date Plaintiff and Lundy LLC executed
an Amendment to the Lease Agreement as Lessor and Lessee in order
to extend the terms of the 1975 Lease for another three years
until February 28, 2010.

Then on March 1, 2010, Plaintiff and

Lundy LLC executed a Second Amendment to the Lease Agreement as
Lessor and Lessee in order to extend the terms of the 1975 Lease
for another three years until February 28, 2013.

There is no

documentation or evidence related to either of these Amendments
that Defendants agreed to the Amendments or agreed to guarantee
Lundy LLC’s obligations under the extended provisions of the 1975
Lease.
On April 8, 2011, during the time period referenced in the
Second Amendment to the Lease described above, Plaintiff filed
suit in this Court claiming that Lundy LLC, as Lessee, failed to
make rental payments since December 2010, failed to pay taxes on
the Leased Property in 2010, failed to maintain property
insurance on the Leased Property, and failed to report sales
since 2000 in order to determine the outstanding rents owed to
Plaintiff, all in violation of the 1975 Lease.

Plaintiff seeks

to hold Defendants liable as Guarantors of Lundy LLC’s
obligations under the 1975 Lease because Lundy LLC filed for
bankruptcy under Chapter 11 of the Bankruptcy Code in 2001.
Defendants have filed a Motion to Dismiss or, Alternatively, for

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Summary Judgment (Rec. Doc. 16), and Plaintiff opposes the
motion.
THE PARTIES’ ARGUMENTS
Defendants argue that they are not liable as Guarantors for
the obligations of Lundy LLC under the 1975 Lease.

The Guaranty

executed by Pizza Hut on September 18, 1975, does not extend
beyond the original thirty-year term of the 1975 Lease, which
ended on March 1, 2007, and Defendants did not agree to the
Amendments executed by Plaintiff and Lundy LLC to extend the
terms of the 1975 Lease until 2013.

Furthermore, the Guaranty

executed by Pizza Hut on September 18, 1975—for Pizza Hut of
Louisiana’s obligations under the 1975 Lease and extended to
Lundy Inc. through consent—did not remain effective after the
assignment from Lundy Inc. to Lundy LLC on March 4, 1998, without
Pizza Hut’s consent.
Plaintiff argues that her Complaint adequately states a
claim for relief and that material issues of fact remain that
preclude summary judgment.

Plaintiff states that Pizza Hut

agreed to act as Guarantor to the 1975 Lease on September 18,
1975, the 1975 Lease has remained in effect since that time, the
terms of the 1975 Lease have been breached by Lundy LLC, and now
Defendants are liable as Guarantors for Lundy LLC’s actions.
Furthermore, Plaintiff argues that genuine issues of fact remain
regarding whether Defendants tacitly approved, affirmed, or
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ratified the Amendments to the 1975 Lease and the extension of
the accompanying Guaranty.

Finally, Plaintiff requests that if

the Court finds that her Complaint does not state a claim for
relief, then she be given the opportunity to amend it under
Federal Rule of Civil Procedure 15.
DISCUSSION
Under the Federal Rules of Civil Procedure, a complaint must
contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.”

FED. R. CIV. P. 8(a)(2).

The

complaint must “give the defendant fair notice of what the claim
is and the grounds upon which it rests.”
Broudo, 544 U.S. 336, 346 (2005).
simple, concise, and direct.”

Dura Pharm., Inc. v.

The allegations “must be

FED. R. CIV. P. 8(d)(1).

To survive a Federal Rule of Civil Procedure 12(b)(6) motion
to dismiss, the plaintiff must plead enough facts “to state a
claim to relief that is plausible on its face.”

Ashcroft v.

Iqbal, __U.S.__, 129 S.Ct. 1937, 1949 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007)).

A claim is

facially plausible when the plaintiff pleads facts that allow the
court to “draw the reasonable inference that the defendant is
liable for the misconduct alleged.”

Iqbal, 129 S.Ct. at 1949.

“A court must accept all well-pleaded facts as true and must draw
all reasonable inferences in favor of the plaintiff.

Lormand v.

U.S. Unwired, Inc., 565 F.3d 228, 232-33 (5th Cir. 2009); Baker

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v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).

A court is not,

however, bound to accept as true legal conclusions couched as
factual allegations.

Iqbal, 129 S.Ct. at 1949-50.

Summary judgment is appropriate if “there is no genuine
issue as to any material fact and the moving party is entitled to
judgment as a matter of law.”

FED. R. CIV. P. 56(c).

The moving

party bears the initial burden of demonstrating the absence of a
genuine issue of material fact.
U.S. 317, 323 (1986).

Celotex Corp. v. Catrett, 477

If that burden has been met, the non-

moving party must then come forward and establish the specific
material facts in dispute to survive summary judgment.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
588 (1986).
Louisiana Civil Code article 3035 defines suretyship as “an
accessory contract by which a person binds himself to a creditor
to fulfill the obligation of another upon the failure of the
latter to do so.”

LA. CIV. CODE art. 3035.

A contract of

guaranty is “equivalent to a contract of suretyship, and the two
terms may be used interchangeably.”

Keller Indus., Inc. v.

Deauville Consultants, Inc., 459 So. 2d 636, 638 (La. App. 5 Cir.
1984).

Although a contract of suretyship does not have to meet

technical formalities, it is a formal agreement that “must be
express and in writing” and “contain an absolute expression of an
intent to be bound.”

LA. CIV. CODE art. 3038; Keller Indus., 459

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So. 2d at 638; see also Guaranty Bank & Trust Co. v. Jones, 489
So. 2d 368, 370 (La. App. 5 Cir. 1986).

Accordingly, “[p]arol

evidence may not be used to establish . . . a suretyship,” and
courts “can only consider the ‘written agreement’ involved . . .
in order to determine if a suretyship relationship or a
continuing guaranty exist[s] . . . .”

Keller Indus., 459 So. 2d

638; see also Guaranty Bank & Trust, 489 So. 2d at 371.
In describing the termination of a contract of suretyship,
the Louisiana Civil Code states that “[t]he extinction of the
principal obligation extinguishes the suretyship.”
art. 3059.

LA. CIV. CODE

Moreover, the Louisiana Civil Code provides for the

termination of a contract of suretyship through modification or
amendment of the principal obligation as follows:
The modification or amendment of the principal
obligation, or the impairment of real security held for
it, by the creditor, in any material manner and without
the consent of the surety, . . . [causes] [a] commercial
surety . . . [to be] extinguished to the extent the
surety is prejudiced by the action of the creditor,
unless the principal obligation is one other than the
payment of money, and the surety should have contemplated
that the creditor might take such action in the ordinary
performance of the obligation.
The creditor has the
burden of proving that the surety has not been prejudiced
or that the extent of the prejudice is less than the full
amount of the surety’s obligation.
LA. CIV. CODE art. 3062.
In this case, Plaintiff asserts claims against Defendants in
two relevant time periods.

During the original thirty-year term

of the 1975 Lease, Plaintiff alleges that Lundy LLC, as Lessee,

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failed to report sales since 2000 in order to determine the
outstanding rents owed to Plaintiff.

Second, after the original

thirty-year term of the 1975 Lease and during the time period
contemplated by the Amendments to the 1975 Lease, Plaintiff
alleges that Lundy LLC, as Lessee, failed to make rental payments
since December 2010, failed to pay taxes on the Leased Property
in 2010, and failed to maintain property insurance on the Leased
Property.

The Court will consider the claims within each of

these relevant time periods separately.
Regarding Plaintiff’s failure to report sales claim during
the original thirty-year term of the 1975 Lease, the Court finds
that Plaintiff has adequately alleged facts to state a claim for
relief in order to survive dismissal under Rule 12(b)(6).

This

claim against Defendants arose during the original thirty-year
term of the 1975 Lease—between 2000 and March 1, 2007—for which
Pizza Hut expressly agreed in writing on September 18, 1975, to
act as Guarantor.

The facts and allegations in Plaintiff’s

Complaint, as well as reasonable inferences therefrom, indicate
that Pizza Hut executed an express, written agreement to act as
Guarantor during the original thirty-year term of the 1975 Lease,
that Lessee Lundy LLC breached its obligations under the 1975
Lease, and that this breach occurred during the original thirtyyear term of the 1975 Lease.

These factual allegations meet the

standard required to survive dismissal under Rule 12(b)(6).

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Defendants argue in the alternative that if Plaintiff’s
claim for failure to report sales survives dismissal under Rule
12(b)(6), then it should be dismissed on summary judgment as a
matter of law because Pizza Hut’s obligation as Guarantor was
terminated under Civil Code article 3062 on March 4, 1998, when
Lundy Inc. assigned its obligations under the 1975 Lease to Lundy
LLC without Pizza Hut’s consent.

Defendants claim that this

assignment without consent was a modification of the principal
obligation, which caused the suretyship to be extinguished before
the natural expiration of the original thirty-year term of the
1975 Lease.
With respect to this alternative argument for summary
judgment by Defendants, the Court finds that genuine issues of
material fact remain regarding Plaintiff’s failure to report
sales claim that preclude summary judgment at this time.

As

described above, Civil Code article 3062 provides that a
modification or amendment of the principal obligation
extinguishes a commercial suretyship, but only to the extent that
the surety is prejudiced.

LA. CIV. CODE art. 3062.

During oral

argument, counsel for Defendants admitted that the suretyship at
issue in this case is a commercial suretyship, so the
modification of the principal obligation caused by the assignment
of the 1975 Lease from Lundy Inc. to Lundy LLC without Pizza
Hut’s consent only extinguishes Defendants’ suretyship obligation

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to the extent they were prejudiced.

Whether or not Defendants

were prejudiced, and to what extent, is still a genuine issue of
fact that precludes summary judgment on Plaintiff’s failure to
report sales claim.
Regarding Plaintiff’s claims arising after the expiration of
the original thirty-year term of the 1975 Lease, the Court finds
that Plaintiff has failed to plead enough facts to state a claim
for relief because Plaintiff has not adequately alleged in her
Complaint that Defendants expressly agreed to act as Guarantors
during that period of time.

Plaintiff does not allege specific

facts to establish Defendants’ clear and absolute expression of
intent to be bound after the original thirty-year term of the
1975 Lease and during the Amendments of 2007 and 2010, which were
executed by different parties than the original 1975 Lease and
1992 letter of assignment to Lundy Inc.

Plaintiff’s conclusory

allegations and references to the lack of language in the 2007
and 2010 Amendments that Defendants will not continue to be bound
as Guarantors are not sufficient to establish a cause of action
based on the principles of suretyship.
The Court finds that any amendment to the Complaint under
Rule 15 would be futile because the documentation needed by
Plaintiff to establish a cause of action does not exist.

The

only express, written intent to be bound as Guarantor exists
between Pizza Hut and Lessees Pizza Hut of Louisiana—which later

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became Pizza Hut of America—and Lundy Inc., and only for the
original thirty-year term of the 1975 Lease.

Any amendment to

the Complaint will not be able to allege the express, written
consent of Defendants needed to support a cause of action based
on the principles of suretyship for Lundy LLC’s breach of the
1975 Lease that occurred after the expiration of the original
thirty-year term of that lease.
Counsel for Plaintiff contended in oral argument that Pizza
Hut’s express, written intent to act as Guarantor for the
original thirty-year term of the 1975 Lease can be extended to
the time periods encompassed by the 2007 and 2010 Amendments
through implied consent or tacit approval of the Amendments.
Counsel for Plaintiff argued that this implied consent or tacit
approval stems from the fact that Lessee Lundy LLC continued to
operate the Pizza Hut restaurant on the Leased Property during
the time period encompassed by the Amendments and that Pizza Hut
knew about this continued operation and received payments during
this time period through its franchise agreement with Lundy LLC.
The Court, however, does not find these arguments persuasive
given the relevant Civil Code articles and case law on suretyship
described above.
In Southern Fleet Leasing Corporation v. Airline Builders
Service, Inc., the court dealt with the validity of a suretyship
agreement for a contract of lease where the original one-year

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term had expired and the parties to the lease decided to exercise
the option of continuing the lease on a month-to-month basis
without the consent of the surety.
App. 1 Cir. 1961).

136 So. 2d 458, 459-61 (La.

The court found that contracts of suretyship

are accessory obligations that must be strictly construed;
therefore, the continuation of the lease on a month-to-month
basis without the consent of the surety after the expiration of
the original contract term discharged the obligation of the
surety.

Id. at 461-62.

Importantly, the court in Southern Fleet

Leasing did not discuss the possibility of implied or tacit
consent by the surety to the month-to-month extension of the
expired lease term, and this Court has found no case law to
support Plaintiff’s argument on the issue.
Given the substantially similar factual scenario between
Southern Fleet Leasing and the instant matter and the clearly
drafted Civil Code articles on suretyship, the Court finds that
Pizza Hut’s consent to the 2007 and 2010 Amendments had to be
done expressly and in writing, not impliedly or tacitly.
Therefore, amendment to Plaintiff’s Complaint under Rule 15 would
be futile.

Moreover, even if Plaintiff’s Complaint, as is or

amended, were sufficient to survive dismissal under Rule
12(b)(6), the Court finds that Plaintiff’s claims should be
dismissed on summary judgment, as argued in the alternative by
Defendants, for these same reasons.

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There are no genuine issues

of material fact regarding the lack of an express, written
consent by Pizza Hut to the 2007 and 2010 Amendments, so
Plaintiff is not entitled to relief on her claims arising after
the original thirty-year term of the 1975 Lease as a matter of
law.
Accordingly, IT IS ORDERED that Defendants Pizza Hut of
America, as successor-in-interest to Pizza Hut of Louisiana, and
Pizza Hut’s Motion to Dismiss or, Alternatively, for Summary
Judgment (Rec. Doc. 16) is hereby GRANTED IN PART and DENIED IN
PART.

The motion is GRANTED with respect to Plaintiff’s claims

arising after the expiration of the original thirty-year term of
the 1975 Lease, and the motion is DENIED with respect to
Plaintiff’s claims arising during the original thirty-year term
of the 1975 Lease.
New Orleans, Louisiana, this 15th day of July, 2011.

CARL J. BARBIER
UNITED STATES DISTRICT COURT

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