H/S Wilson Outparcels, LLC v. Kroger Limited Partnership I

Filing 53

ORDER granting in part and denying in part 36 Motion for Summary Judgment. Having considered the current posture of the case, referral of the case for court-hosted settlement conference at this time is appropriate. This matter is referred to US M agistrate Judge Robert T. Numbers, II for the purpose of conducting a court-hosted settlement conference. Should the case not settle, the parties shall file a joint notice with proposed trial dates within 14 days of the conclusion of the settlement conference. Signed by US Magistrate Judge Robert B. Jones, Jr. on 9/27/2017. (Grady, B.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:15-CV-591-RJ

HIS WILSON OUTP ARCELS, LLC,
Plaintiff/Counter Defendant,

v.
- KROGER LIMITED PARTNERSHIP I,
Defendant/Counter Claimant.

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ORDER

This matter is before the court on the motion for summary judgment of Kroger Limited
Partnership I ("Defendant" or "Kroger"). [DE-36]. HIS Wilson Outparcels, LLC ("Plaintiff' or
"HIS Wilson") filed a response in opposition [DE-48], and Kroger filed a reply [DE-52]. For the
reasons that follow, the motion for summary judgment is granted in part and denied in part.

I. STATEMENT OF THE CASE
On November 12, 2015, this action was removed from Wilson County Superior Court.
[DE-1]. HIS Wilson asserts claims against Kroger for breach of contract and-waste and seeks
specific performance, monetary damages, and attorney's fees [DE-11] at 3-6, and Kroger asserts
a counterclaim for breach of contract against HIS Wilson. [DE-5] at 4. The parties consented to
magistrate judge jurisdiction, and the case was first assigned to Judge Swank and later to the
undersigned. [DE-13]; Dec. 16, 2015 Text Order; Jan. 4, 2017 Text Order. After a period of
discovery, Kroger filed the instant motion for summary judgment. [DE-36].

II. STATEMENT OF FACTS

On May 2, 2000, HIS Wilson, the owner of the Wilson Mall in Wilson, North Carolina,
entered into an agreement to lease property (the "premises") to Kroger. [DE-11] iii! 1, 3. A
grocery store was constructed on the premises, which Kroger operated until June 24, 2004, and
despite the store closing, Kroger is obligated to continue maintaining the premises as required by
the lease. Id iii! 7-8, 10. The lease agreement provides in relevant part that Kroger, as tenant,
shall keep the Demised Premises in good order, condition and repair, ordinary
wear and tear excepted, and shall promptly make or cause to be made any and all
necessary or appropriate maintenance and repairs (herein collectively referred to
as "Repairs"). All Repairs shall be at least equal in quality and class to the
original work.

Id

ii 10 (quoting Ex. A [DE-11-1] ii 29).
In 2011, the store roof sustained damage from a severe storm.

Dep. James Cooper

("Cooper Dep.") [DE-48-4] at 16:2-5, 35:3-7. By letter of June 30, 2011, HIS Wilson notified
Kroger that the roof of the store was damaged and demanded that Kroger return the premises to
"good order, condition and repair" as required under the lease. [DE-48-1]. Kroger obtained
repair proposals in July and August of 2011, but apparently due to an oversight, no repairs were
made to the roof until late in 2014. Cooper Dep. [DE-48-4] at 25:12-14, 36:11-17, 85:13-86:1;
Pl.'s Ex. 2 [DE-48-2]; Pl.'s Ex. 3 [DE-48-3]. HIS Wilson sent a another letter to Kroger dated
June 26, 2015, indicating it believed the repairs were insufficient and that Kroger was in
violation of the lease. [DE-11-2] at 1-3. In September 2015, Kroger hired a contractor to
"clean-up" the interior of the store, which included some mold remediation. Cooper Dep. [DE48-4] at 30:10-24; Def.'s App'x to Reply, Ex. 1 [DE-52-1] at 4. However, HIS Wilson was not
satisfied with Kroger's response and alleges Kroger failed to maintain the premises as required
by the lease, resulting in active roof leaks, standing water, and excessive mold growth on the

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premises. [DE-11]

ifif

11-12. HIS Wilson further alleges there are other signs of failure to

maintain the premises, including rust, stained walls, peeled paint, and cracked windows. Id

if

13.

III. STANDARD OF REVIEW
Summary judgment is appropriate where "the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.
R. Civ. P.· 56(a). The party seeking summary judgment bears the initial burden of demonstrating
the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Once the movant has met its burden, the nonmoving party then must affirmatively
demonstrate, with specific evidence, that there exists a genuine issue of material fact requiring
trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). Only
disputes between the parties over facts that might affect the outcome of the case properly
preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24748 (1986).

IV. DISCUSSION
Kroger contends that HIS Wilson can present no facts to support its contention that
Kroger failed to keep the premises in "good order, condition and repair" as required by the lease.
Def. 's Mem. [DE-37] at 5-8. Specifically, Kroger argues that the grounds for the breach of
contract claims are the failure to repair the roof resulting in active water leaks and the failure to
remediate mold on the premises, and expert testimony is required regarding the "penetrability of
the subject roof, or whether the subject premises required mold remediation, because such
subjects are not within full understanding oflay persons." Id at 6.

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In response, HIS Wilson offers the sworn affidavit of Elizabeth Wilson, the Director of
Property Management for Hull Property Group, who manages the premises for HIS Wilson.
Pl.'s Mem. [DE-48] at 7-8; Aff. of Elizabeth Wilson ("Wilson Aff.") [DE-51]. Wilson was
present for two inspections of the property in January and September 2016 and personally
observed and photographed the condition o{the building, including rust on the steel decking and
rust holes, rusted and broken gutter, rust on steel columns, water stains on cinderblock walls,
mold on interior painted surfaces, saturated roofing insulation, and displaced and buckled
.
.
insulation boards. Wilson Aff. [DE-51]

iii! 5-8.

HIS Wilson argues that Wilson's testimony, the

photographic evidence, and the testimony of Kroger's own expert creates a question of material
fact and that a reasonable person could conclude that the roof needs to be replaced. PL 's Mem.
[DE-48] at 8. HIS Wilson further argues that an expert is not necessary to understand that rain
exposure and prolonged ~ater saturation lead to rust and decay ~d that the cause of the damage
is not at issue because there is no dispute that the roof membrane was peeled back by the storm
in 2011 and left open for three years allowing water to penetrate the roof. Id. at 10-11.
Kroger, in its reply, asserts that the evidence submitted by HIS Wilson is not competent
to show that Kroger's repairs made to the premises in 2014 and 2015 were inadequate such that
it is in violation of the lease. Def.'s Reply [DE-52] at 1-2. Specifically, Kroger argues that
Wilson is inherently interested in the outcome of the litigation because she is employed by HIS
Wilson; Wilson is not an expert and her testimony cannot be used to establish the significance of
the rust and wetness she observed or that the roof requires replacement; and HIS Wilson has
presented no evidence that Kroger "should be doing something differently with respect to its
maintenance of the property" or that it is in violation of the lease. Id. at 4. Finally, Kroger
argues that HIS Wilson's failure to designate an expert and the reliance on Wilson's lay

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testimony contravenes the purpose and spirit of the Federal Rules of Civil Procedure and
prejudices Kroger because its own expert had no opportunity to rebut Wilson's observations. Id.
at 5-7.
The question before the court is whether Wilson's lay testimony, coupled with other
evidence, is sufficient to create a geiluine dispute as to any material fact, or whether expert
testimony is required for HIS Wilson to prevail on its breach of contract claims. This case is in
federal court on diversity jurisdiction and, as such, North Carolina substantive law and federal
procedural law apply. See In re C.R. Bard, Inc., MDL. No. 2187, Pelvic Repair Sys. Prod. Liab.

Litig., 810 F.3d 913, 919 n.1 (4th Cir. 2016). Under North Carolina law, "[t]he elements, of a
claim for breach of contract are (1) existence of a valid contract and (2) breach of the terms of
that contract." 1 Parker v. Glosson, 182 N.C. App. 229, 232, 641 S.E.2d 735, 737 (2007)
(internal quotations omitted).
Lay and expert testimony are governed by the rules of evidence, and the Federal Rules of
Evidence and North Carolina Rules of Evidence regarding the proper scope of lay testimony are
in accord. State v. McClelland, 781 S.E.2d 718, 2016 WL 223691, at *5 (N.C. Ct. App. 2016)
("Rule 701 of the North Carolina Rules of Evidence is

'indisting~ishable'

from Rule 701 of the

Federal Rules of Evidence.") (citing State v. Collins, 216 N.C. App. 249, 256, 716 S.E.2d 255,
260 (2011)). The rule on opinion testimony by a law witness provides,

If a witness is not testifying as an expert, testimony in the form of an opinion is
limited to one that is:
(a) rationally based on the witness's perception;
(b) helpful to clearly understanding the witness's testimony or to determining a
fact in issue; and
: ..,,.r

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HIS Wilson's waste claim is also based on Kroger's alleged failure to satisfy its obligations under the lease.
Compl. [DE-ll]if 29.

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(c) not based on scientific, technical, or other specialized knowledge within the
scope of Rule 702.
Fed. R. Evid. 701. "[L]ay opinion testimony must be based on personal knowledge" and "the
.

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perception of the witness," whereas an expert witness "must possess some specialized
knowledge or skill or education that is not in possession of the jurors." United States v. Johnson,
617 F.3d 286, 292-93 (4th Cir. 2010) (citations omitted). The line between lay and expert.
testimony may be "a fine one," and while "Rule 701 forbids the admission of expert testimony
dressed in lay witness clothing, [] it does not interdict all inference drawing by lay witnesses."
United States v. Perkins, 470 F.3d 150, 155-56 (4th Cir. 2006) (citations omitted).

First, Kroger's contention that HIS Wilson can present no facts to support that Kroger
failed to keep the premises in "good order, condition and repair" as required by the lease lacks
merit. Wilson states in her affidavit that she observed the premises "on several occasions."
Wilson Aff. [DE-51]

if 5. Specifically, on January 7, 2016, Wilson observed "[t]he roof was

spongy and uneven," "[t]he gutter was rusted and broken," [t]here were several areas of
noticeable rust coming through the recently painted underside of the steel decking, along with
rust holes," "[t]here were rusty steel columns," and "[t]he cinderblock walls have water stains;"
and on September 27, 2016, she observed "[m]old growing on interior painted surfaces,"
"[a]dditional rusted portions of the underside of the metal decking (beyond what was present in
January 2016[])," "[r]usted steel roof decking on the upper side of the roof in at least three
distinct areas of the roof," "[s]aturated insulation in at least three distinct areas of the roof," and
"[d]isplaced and buckled insulation boards in several different areas." Wilson Aff. [DE-51]

iii!

6-7.
These statements are based on Wilson's personal knowledge gained from observing the
premises on the specified dates, and no specialized skill or training is needed to opine that one
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observed water, mold, or rust. See Mock v. Cent. Mut. Ins. Co., 158 F. Supp. 3d 1332, 1343-44
(S.D. Ga. 2016) (scientific or specialized background was not required to know that water would
have entered through the openings in the roof that the witness observed); R & S Auto Sales v.
Owners Ins. Co., No. 4:13-CV-479-RAW, 2015 WL 12434459, at *8 (S.D. Iowa Jan. 5, 2015)
(denying defendant's summary judgment motion on claim for remediation of soot because it was
"not dependent on expert testimony to prove the element of necessity" and "[s]oot is an
observable condition the existence and extent of which can be established by lay testimony.");
see also Bel/south Telesensor v. Info. Sys. & Networks Corp.,_ 65 F.3d 166 (4th Cir. 1995)
("[E]xpert testimony not only is unnecessary but indeed may be properly excluded in the
discretion of the trial judge if all the primary facts can be accurately and intelligibly described to
the jury, and if they, as men of common understanding, are as capable of comprehending the
primary facts and of drawing correct conclusions from them [as the experts].") (internal
quotation marks omitted) (quoting Salem v. US. Lines Co., 370 U.S. 31, 35 (1962)).
The instant case is also distinguishable from the case of Guyther v. Nationwide Mut. Fire
Ins. Co., 109 N.C. App. 506, 515, 428 S.E.2d 238, 243 (1993), cited by Kroger. In Guyther, the
court determined that a "lay person does not possess the technical knowledge and skill required
to: form an opinion concerning the cause of the collapse of a building," 109 N.C. App. at 515,
428 S.E.2d at 243, but here the lay testimony at issue is not on a complex subject like the cause
of a building collapse, but rather is the witness's perceptions that insulation was wet, walls were
water stained and mold was present, and roof decking was rusted. Wilson Aff. [DE-51]

iii! 6-7.

Based on Wilson's lay testimony, a jury of common understanding could reasonably conclude
that the premises was not "in good order, condition and repair, ordinary wear and tear excepted"
as required by the lease.

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Kroger's argument that Wilson is inherently interested in the outcome of the litigation
because she is employed by HIS Wilson fails because it goes to Wilson's credibility and the
weight of her testimony, which are issues for the jury to decide. See Summerlin v. Edgar, 809
F .2d 1034, 1039 (4th Cir. 1987) ("Credibility of conflicting testimony is not, on a summary
judgment motion, an issue to be decided by the trial judge.") (citing Morrison v. Nissan Motor
Co., 601 F.2d 139, 141 (4th Cir. 1979); Cram v. Sun Insurance Office, Ltd, 375 F.2d 670, 674

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(4th Cir. 1967)). Kroger's argument that HIS Wilson'.s failure to designate an expert and the
reliance on Wilson's lay testimony contravenes the purpose and spirit of the Federal Rules of
Civil Procedure is unsupported, and Kroger is not unduly prejudiced because it will have the
opportunity to cross-examine Wilson at trial and to present its own witnesses to challenge her
observations.
Next, the court is not persuaded by Kroger's argument that expert testimony is required
regarding the "penetrability of the subject roof, or whether the subject premises required mold
remediation, because such subjects are not within full understanding of lay persons." Def.' s
Mem. [DE-37] at 6. There is no dispute that water entered the premises through the damaged
roof over a period of three years prior to any repairs being made. See Cooper Dep. [DE-48-4] at
25:12-14, 36:11-17, 85:13-86:1. Kroger contends that it repaired all the roofleaks and cleaned
up the resulting water damage including mold from the interior, and Kroger's expert, Fred Hash,
testified that he determined there was no wet insulation under the roof because he walked across
the roof and it was not spongy. Dep. of Frederick P. Hash, Jr. ("Hash Dep.") [DE-48-5] at
41:10-21. However, Hash also later testified that there "may be" wet insulation and that he did
not inspect the insulation by taking "core" samples, which Hash explained was the best way to
determine if the insulation is wet. Id at 42:20-43:8, 83:15-24. Wilson testified that "[t]he roof

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was spongy and uneven," and she observed "[s]aturated insulation in at least three distinct areas
of the roof," "[ d]isplaced and buckled insulation boards in several different areas," and "[m ]old
growing on interior painted surfaces." Wilson Aff. [DE-50]

iii! 6-7.

Wilson's testimony in this

regard is not beyond the scope of common understanding and creates an issue of material fact
regarding the condition of the premises and whether Kroger's repairs were sufficient to bring the
premises into compliance with the lease terms. See 405 Condo Assocs. LLC v. Greenwich Ins.

Co., No. 11 CIV. 9662 SAS, 2012 WL 6700225, at *6 (S.D.N.Y. Dec. 26, 2012) ("[I]t doesn't
take an expert to see that roof :flashing has peeled back, allowing water to penetrate a roof.");

McCall v. Norman, 222 N.C. App. 635, 731 S.E.2d 276 (2012) (finding under the circumstances
presented that "a lay person could properly form an opinion that excessive moisture entering the
home caused the formation of mold which, in turn, rendered the premises uninhabitable and
damaged Defendants' personal property.").
Kroger also argues that Wilson's testimony is insufficient to demonstrate the significance
of the rust and wetness she observed. Def.'s Reply [DE-52] at 4. However, Kroger's own expert
testified at his deposition as to the significance of rust and water in the roof. Hash testified that
· the damage from water getting into insulation is that the insulation_ "becomes no good," "loses its
structural integrity," and loses its "thermal resistance to heat [and] cooling," Hash Dep. [DE-485] at 68:1-8, and that the rusting of the roof decking "would weaken the structural integrity," id.
at 70:7-14. Hash also testified that the "recommended fix" for wet insulation was to "remove
and replace it," id. at 73:21-23, and that rusted decking should be cleaned, primed, and
rustproofed, or replaced if it has lost its structural integrity, id. at 73:24-74:14. Thus, there is
evidence in the record that the jury is capable of understanding and from which the jury could
conclude that the conditions observed by Wilson require repair or replacement based on Hash's

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testimony in order to maintain the premises "in good order, condition and repair, ordinary wear
and tear excepted" as required by the lease.
The court agrees with Kroger, however, that HIS Wilson has failed to present competent
evidence that the entire roof requires replacement. Wilson provided no such opinion, and even if
she had such testimony would likely extend beyond scope of lay testimony permissible under
Rule 701. See R & S Auto Sales, 2015 WL 12434459, at *9 (concluding that "resolution of the·
issues pertaining to the necessity of the new roof requires more than the knowledge or
experience a lay person could bring to bear."). Under the circumstances presented here, whether
the roof is damaged beyond repair requires the technical or specialized knowledge of an expert,
and the only expert opinion came from Kroger's expert Hash, who testified that he believed the
roof did not need to be replaced in 2011 or in 2016. Id. at 76: 17, 89:12-90:5.
In sum, HIS Wilson has presented sufficient evidence to create an issue of material fact as

to whether Kroger failed to make the necessary roof repairs and interior remediation to maintain
the premises in "good order, condition and repair," but failed to create an issue of material fact as
to whether the roof requires total replacement.

V. CONCLUSION
For the reasons stated herein, Kroger's motion for summary judgment [DE-36] is allowed
in part and denied in part. Having considered the current posture of the case, referral of the case
for court-hosted settlement conference at this time is appropriate. Accordingly, this matter is
referred to Magistrate Judge Robert T. Numbers, II for the purpose of conducting a court-hosted
settlement conference.

Should the case not settle, the parties shall file a joint notice with

proposed trial dates within 14 days of the conclusion of the settlement conference.

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- .~

SO ORDERED, the 27th day of September, 2017.

United States Magistrate Judge

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