Sierra 76, Inc. v. TA Operating LLC

Filing 20

Memorandum Opinion. Defendant's Motion for summary judgment (Related doc # 15 ) and Plaintiff's cross motion for summary judgment (Related doc # 17 ) are both denied. Trial set for 3/19/2012; trial order to issue. Judge Donald C. Nugent on 1/27/2012. (H,CM)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

SIERRA 76, INC.,
Plaintiff,
v.
TA OPERATING LLC,
Defendants.

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CASE NO. 1:11 CV 1264

JUDGE DONALD C. NUGENT

MEMORANDUM OPINION

This matter is before the Court on Defendants’ Motion for Summary Judgment, and on
Plaintiff’S Cross Motion for Equitable Relief. (ECF #15, 17). Plaintiff, Sierra 76, Inc. (“Sierra”)
and Defendant, TA Operating LLC (“TA Operating”), had a lease agreement with a renewal
option that required notice of intent to renew by a certain date. Sierra failed to provide notice of
its intent to renew before the deadline, but did so after the deadline had passed, and before any
other lease agreement had been negotiated by TA Operating. Subsequently, Defendant made
arrangements to lease the property to a different entity. Sierra is before the Court seeking
equitable relief from the literal enforcement of the lease language. Defendant argues that
equitable relief is neither available nor appropriate under the circumstances. For the reasons set
forth below, this Court hereby denies Defendant’s Motion for Summary Judgment, and denies

Plaintiff’s cross motion for summary judgment on their request for equitable relief.

Facts
There is no dispute that the lease agreement between the parties required Sierra to notify
TA Operating, in writing, fifteen months prior to the expiration of the lease, if it intended to
exercise its renewal option. Under the terms of the lease, notification of intent to renew was due
November 1, 2010. Sierra missed that deadline, and instead provided notice of its intent to renew
on February 3, 2011. Sierra’s President and CEO testified that the failure to timely provide
written notice of intent to renew was caused by a computer corruption issue that eliminated that
renewal reminder from her computerized calendar, and that she did not independently remember
the deadline.

TA Operating contacted another potential tenant, Cashell Enterprises, Inc.

(“Cashell”) in February of 2011. TA Operating and Cashell had a prior contractual agreement
that requires TA to offer and undertake to negotiate in good faith (for up to thirty (30) days) to
permit Cashell to operate in a travel center prior to extending or renewing any existing agreement
it has with any gaming operation in such travel center. In May of 2011 TA Operating entered
into a lease with Cashell. That lease is conditional, depending on the outcome of this litigation.
The lease between Sierra and TA Operating specifically states that it “shall be construed
in accordance with and governed by the laws of the State of Ohio, Cuyahoga County.” (ECF
#15, Ex. 2 at 20).

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Summary Judgment Standard
Summary judgment is appropriate when the court is satisfied “that there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a matter of
law.” FED. R. CIV. P. 56(c). The burden of showing the absence of any such “genuine issue”
rests with the moving party:
[A] party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and identifying those portions
of ‘the pleadings, depositions, answers to interrogatories, and admissions on file,
together with affidavits, if any,’ which it believes demonstrates the absence of a
genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (citing FED. R. CIV. P. 56(c)). A fact is
“material” only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). Determination of whether a factual issue is “genuine”
requires consideration of the applicable evidentiary standards. The court will view the summary
judgment motion in the light most favorable to the party opposing the motion. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Summary judgment should be granted if a party who bears the burden of proof at trial
does not establish an essential element of their case. Tolton v. American Biodyne, Inc., 48 F.3d
937, 941 (6th Cir. 1995) (citing Celotex, 477 U.S. at 322). Accordingly, “[t]he mere existence of
a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be
evidence on which the jury could reasonably find for the plaintiff.” Copeland v. Machulis, 57
F.3d 476, 479 (6th Cir. 1995) (citing Anderson, 477 U.S. at 252). Moreover, if the evidence
presented is “merely colorable” and not “significantly probative,” the court may decide the legal
issue and grant summary judgment. Anderson, 477 U.S. at 249-50 (citations omitted). In most

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civil cases involving summary judgment, the court must decide “whether reasonable jurors could
find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict.” Id.
at 252. However, if the non-moving party faces a heightened burden of proof, such as clear and
convincing evidence, it must show that it can produce evidence which, if believed, will meet the
higher standard. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989).
Once the moving party has satisfied its burden of proof, the burden then shifts to the nonmover. The non-moving party may not simply rely on its pleadings, but must “produce evidence
that results in a conflict of material fact to be solved by a jury.” Cox v. Kentucky Dep’t of
Transp., 53 F.3d 146, 149 (6th Cir. 1995). FED. R. CIV. P. 56(e) states:
When a motion for summary judgment is made and supported as provided in this
rule, an adverse party may not rest upon the mere allegations or denials of the
adverse party’s pleading, but the adverse party’s response, by affidavits or as
otherwise provided in this rule, must set forth specific facts showing that there is a
genuine issue for trial.
The Federal Rules identify the penalty for the lack of such a response by the nonmoving party as
an automatic grant of summary judgment, where otherwise appropriate. Id.
Though parties must produce evidence in support of and in opposition to a motion for
summary judgment, not all types of evidence are permissible. The Sixth Circuit has concurred
with the Ninth Circuit that “‘it is well settled that only admissible evidence may be considered by
the trial court in ruling on a motion for summary judgment.’” Wiley v. United States, 20 F.3d
222, 225-26 (6th Cir. 1994) (quoting Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179, 1181
(9th Cir. 1988)). FED. R. CIV. P. 56(e) also has certain, more specific requirements:
[Rule 56(e)] requires that affidavits used for summary judgment purposes be made
on the basis of personal knowledge, set forth admissible evidence, and show that
the affiant is competent to testify. Rule 56(e) further requires the party to attach
sworn or certified copies to all documents referred to in the affidavit.
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Furthermore, hearsay evidence cannot be considered on a motion for summary
judgment.
Wiley, 20 F.3d at 225-26 (citations omitted). However, evidence not meeting this standard may
be considered by the district court unless the opposing party affirmatively raises the issue of the
defect.
If a party fails to object before the district court to the affidavits or evidentiary
materials submitted by the other party in support of its position on summary
judgment, any objections to the district court’s consideration of such materials are
deemed to have been waived, and [the Sixth Circuit] will review such objections
only to avoid a gross miscarriage of justice.
Id. at 226 (citations omitted).
As a general matter, the district judge considering a motion for summary judgment is to
examine “[o]nly disputes over facts that might affect the outcome of the suit under governing
law.” Anderson, 477 U.S. at 248. The court will not consider non-material facts, nor will it
weigh material evidence to determine the truth of the matter. Id. at 249. The judge’s sole
function is to determine whether there is a genuine factual issue for trial; this does not exist
unless “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for
that party.” Id.
In sum, proper summary judgment analysis entails “the threshold inquiry of determining
whether there is the need for a trial--whether, in other words, there are any genuine factual issues
that properly can be resolved only by a finder of fact because they may reasonably be resolved in
favor of either party.” Anderson, 477 U.S. at 250.

Analysis
This case is before the Court under its diversity jurisdiction. When exercising diversity
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jurisdiction, Federal Courts are bound to apply Ohio law in accordance with the currently controlling
decisions of the Ohio Supreme Court. See Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 517 (6th
Cir. 2001). If there is no controlling Ohio Supreme Court case law on an issue, Federal Courts may
look to Ohio’s lower courts. See, Ventura v. The Cincinnati Enquirer, 396 F.3d 784, 792 (6th Cir.
2005). Decisions from intermediate state appellate courts are viewed as persuasive unless it can be
demonstrated that the Ohio Supreme Court would decide the matter differently. In re Dow Corning
Corp., 419 F.3d 543, 549 (6th Cir. 2005). The parties agree that the Supreme Court of Ohio has not
issued any decision that is directly on point with the facts and circumstances of this case, and that
a review of the decisions of Ohio’s appellate courts is appropriate in this case.
Although the Ohio Supreme Court has held that the clear and unambiguous language of a
contract cannot be altered through the application of equitable principles, these holdings arose in the
context of unjust enrichment or quantum meruit claims where one party sought to recover more than
it had previously bargained for during the contract negotiations. See generally, Dugan v. Meyers
Constr. Co., Inc. V. Ohio Dept. Of Admin. Servs., 113 Ohio St.3d 226, ¶ 29 (2007); Ervin v. Garner,
25 Ohio St.2d 231, 239-240 (1971); Ullmann v. May, 147 Ohio St. 468, 476 (1947). Unlike the
aforementioned cases, the Plaintiff in this case is not seeking to change the financial value or
substance of the contract. Rather Sierra 76 is seeking to obtain an equitable extension on an
administrative or procedural requirement relating to the timing of her lease renewal. The Ohio
Supreme Court has never applied the general prohibition against equitable intervention to a case
involving a commercial tenant’s failure to timely exercise a renewal option on a lease.
Defendant also cites the Ohio Supreme Court case of Joseph J. Freed v. Cassinelli, 23 Ohio
St.3d 94 (1986) for the contention that Ohio courts are bound to enforce lease provisions expressly

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authorizing forfeiture of a commercial premises when sophisticated parties enter into the agreement
from equal bargaining positions. Although the Supreme Court of Ohio did enforce the forfeiture
provision in that case, it is not at all clear that it did so without consideration of equitable principles.
While both the Court of Appeals and the Ohio Supreme Court cited the express language of the lease
agreement, which provided for the remedy of forfeiture upon default, both also discussed and
weighed the equities of the case when rendering their opinions. Therefore, this case does not provide
support for the Defendant’s contention that equitable considerations are never relevant when
determining the appropriate remedy upon a contractual default.
Generally, in the absence of controlling case law from the Ohio Supreme Court, a federal
court sitting in diversity would consider the appellate court cases throughout the state to determine
what the state of the law in Ohio is on a particular issue. The Ohio appellate districts appear to be
split on the question of whether equitable principles can be applied to excuse a lessee’s late
notification of its intent to renew a lease. Compare, e.g., KeyBank NA v. MRN Ltd. Partnership (8th
Dist. 2011), with Fifth Third Bank W. Ohio v. Carroll Bldg. Co., 180 Ohio App.3d 490 (2nd Dist.
2009). In this case, however, Plaintiff contends that because the parties agreed in the lease to apply
the law of Cuyahoga County, only case law from the Eighth District Court of Appeals should be
considered when determining whether equitable relief should be granted. Defendant, on the other
hand, argues that the case was brought under Ohio law and there is no distinction between Ohio law
and the law of Cuyahoga County; therefore, case law from all appellate districts should be
considered and evaluated when determining whether equitable relief is available to the Plaintiff
under these circumstances.
Prior to May 1, 2002, published Court of Appeals opinions were considered to be controlling

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authority in the district of the issuing court. Therefore, had this issue arisen prior to May of 2002,
there would have been clear, controlling law, as set forth in KeyBank and Vivi, in Cuyahoga County,
that differed somewhat from the law in other parts of the state with regard to the issue currently
before this Court. Under the terms of the lease agreement, this Court would have been bound to
apply KeyBank in order to satisfy the clear language of the choice of law provision in the contract.
In May of 2002, however, the current Supreme Court rules for the Reporting of Opinions abolished
the differentiation between binding or controlling opinions and gave equal weight to all court of
opinions in all courts, regardless of the district. Rep. R. 4(A), (B). As a result of this change, there
is no longer any differentiation between the controlling case law applicable in different counties or
districts. Therefore, there is, in effect, no law of Cuyahoga County that differs from the general law
of Ohio.
Nonetheless, for reasons unknown to this Court, in a corporate transaction, with equal
bargaining parity, the parties in the instant case bargained for, agreed to, and included a choice of
law provision that specified that the law of Ohio, Cuyahoga County would apply to all disputes and
interpretation issues arising under their contract. To the extent possible, the Court is bound to give
effect to the intent of the parties, as expressed in the language of the contract. See, e.g., Sunoco, Inc.
v. Toledo Edison Co., 129 Ohio St.3d 397, 404. The Ohio Supreme Court Rules for the Reporting
of Opinions, Rep. R. 4, while no longer mandating that Court of Appeals decisions are controlling
in their districts, did provide that Court of Appeals opinions may be “weighted as deemed
appropriate by the courts.” This gives the Court sufficient authority to exercise its discretion under
the unique circumstances of this case, and assign greater weight to the Eighth District Court of
Appeals decisions, in accordance with the apparent intent of the parties as articulated in the choice

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of law provision.
Therefore, the Court finds that because the parties specifically contracted to apply the laws
of “Ohio, Cuyahoga County” to any issues raised in connection with the enforcability of the contract,
the Court, in order to give effect to the intent of the parties as articulated in the language of the
contract, should weigh the decisions of the Eighth District more heavily than the opinions of other
Districts and apply the case law of Cuyahoga County absent any clearly contradictory statements of
law issued by the Ohio Supreme Court.1 As the parties have agreed that there are no Ohio Supreme
Court decisions directly on point with the facts and circumstances of this case, the Court will apply
the standard articulated by the Eighth District Court of Appeals to determine if equitable relief
should be granted in this case.
The Eighth District has clearly accepted that equitable relief may be awarded to excuse a
lessees failure to timely exercise an option to renew a lease. The test for determining when such
relief is warranted was set forth in Vivi Retail, Inc. V. E&A Northeast LP, 2008 WL 4263446 (Ohio
App. 8th Dist), and re-affirmed in KeyBank NA v. MRN Ltd. Partnership, 193 Ohio App.3d 424, 952
N.E.2d 532 (8th Dist. 2011). Under these cases:
Even though a lease may be clear and unambiguous, equitable relief may still be
granted to relieve a lessee from the consequences of a failure to give notice at the
time, or the form and manner, required as a condition precedent to renewal of the
lease, where (1) such failure results from accident, fraud, surprise or honest mistake,
and (2) has not prejudiced the lessor.

1

This should in no way be construed as a decision by this Court that the opinions coming
out of the Eighth District are more persuasive, better reasoned, or more in line with the
general positions of the Ohio Supreme Court. However, in order to give effect to the
specific and unusual choice of law provision that applies in this case, the Court feels
compelled to look to the Eighth District case law to provide the standard to be applied
under the specific circumstances of this case.
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(citing Ward v. Washington Distributors, Inc., 67 Ohio App.2d 49, 53, 425 N.E.2d 420 (1980)).
In the instant case, Plaintiff claims that she missed the renewal deadline because her
computer malfunctioned, somehow erasing the notification she programmed to remind her when her
notice was due. Defendant argues that even if this were true, the failure to timely renew did not
result from accident, fraud, surprise or honest mistake, but rather was the result of negligence or
recklessness.
The issue of whether Plaintiff’s failure to give notice constitutes accident, surprise or honest mistake
(fraud is not alleged), is a question of fact that cannot be determined on summary judgment.
In addition, Defendant argues that Plaintiff’s failure to provide timely notice triggered its
contractual obligation to offer the lease to Cashell. Under a prior contract between TA Operating
and Cashell, TA Operating was required to offer and undertake to negotiate in good faith (for up to
thirty (30) days) to permit Cashell to operate in a travel center prior to extending or renewing any
existing agreement it has with any gaming operation in such travel center. Defendant contends that
Plaintiff’s failure to timely renew the lease extinguished TA Operating’s existing agreement to
extend the lease, thereby triggering its obligation to Cashell. Therefore, according to Defendant it
would be prejudiced if it were forced to give the lease extension to Plaintiff, because it would then
be in breach of its contractual obligations to Cashell. Plaintiff argues that TA Operating did not even
contact Cashell to inform them the lease was available until after Sierra 76 had already given
notification (albeit late notification) of its intent to renew. Therefore, Plaintiff contends Defendant
was not prejudiced by the delay. In addition, it is unclear from the language of the contractual
obligation between TA Operating and Cashell, whether permitting late notice of an intent to exercise
an already existing option to extend the lease would constitute an “extension or renewal” of the

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existing agreement between TA Operating and Cashell. Therefore, the question of prejudice also
remains as a material question of fact that precludes the issuance of summary judgment in this case.

Conclusion
For the reasons set forth above, Defendant’s motion for summary judgment and Plaintiff’s
Cross motion for summary judgment on their request for equitable relief are both denied. Trial is
set for March 19, 2012 ; trial order to issue. IT IS SO ORDERED.

/s/ Donald C. Nugent
DONALD C. NUGENT
United States District Judge

DATED:

January 27, 2012

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