WC 1899 McKinney Aevenue, LLCv. The One Group Hospitality, Inc., et al
Filing
109
ORDER GRANTING IN PART AND DENYING IN PART 79 Motion for Summary Judgment; GRANTING 83 Motion for Leave to File Sealed Document; GRANTING 100 Motion for Leave to File Sealed Document; DISMISSING AS MOOT 103 Motion to Strike. Signed by Judge Sam Sparks. (td)
,..
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
2019 HAY 13
WC 1899 MCKINNEY AVENUE, LLC,
Plaintiff/Counter-Defendant,
p
CAUSE NO.:
AU-17-CA-00687-SS
-vs-
STK DALLAS, LLC, and THE ONE
GROUP HOSPITALITY, INC.,
Defendants/Counter-Plaintiffs,
-vs-
WORLD CLASS CAPITAL GROUP, LLC,
NATIN PAUL, and SHEENA PAUL,
Third-Party Defendants.
r*'
Ui
ii
i'
J
l,
lip
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause,
and specifically WC 1899 McKinney Avenue, LLC, World Class Capital Group, LLC, and Natin
and Sheena Paul (collectively, World Class)'s Motion for Summary Judgment [#79], STK
Dallas, LLC and The One Group Hospitality, Inc. (collectively, STK)'s Response [#82] in
opposition, and World Class's Reply [#92] in support.' Having reviewed the documents, the
governing law, the arguments of counsel, and the file as a whole, the Court now enters the
following opinion and orders.
Background
This dispute concerns a lease agreement between World Class and STK. STK is a
restaurant group that sought to open a restaurant in Dallas, Texas. Resp. [#82-1] Segal Deci.
The Court grants the parties' related motions to file documents under seal. See STK Motion to Seal [#83];
World Class Motion to Seal [#100].
1
1
52
at
1
Towards that end, STK entered into discussions with World Class in 2014 regarding a
potential lease of retail space at 1899 McKinney Avenue (the Premises). Id.
I.
Lease Negotiations
During the lease negotiations, STK discovered the Premises lacked onsite parking and
expressed concern about its ability to secure nearby offsite parking for its planned restaurant.
Mot. Summ. J. [#79] at 106. In an attempt to allay these concerns, World Class undertook a
search for offsite parking in early 2015. Internal emails exchanged within World Class around
that time suggest World Class had considered eight possible parking lots in the vicinity, of which
four were unavailable. Mot. Seal [#83-11 Ex. A at 2-6. World Class concluded the other four lots
were likely only available on a month-to-month basis "if they are available at all." Id.
By May 2015, neither party had identified a parking solution, and on May 17, 2015, STK
proposed "add[ing] a contingency [to the proposed lease agreement] for finding acceptable
offsite parking for intended use" because "[o]perations has not had a chance to secure a lot."
Segal Deci. at 8-9. World Class responded that there was "plenty of parking nearby in garages
and surface lots" and assured STK that it would "help in any way as needed." Id. But World
Class resisted adding a parking contingency to the Lease Agreement on the ground that the
addition of another contingency would "throw a monkey wrench in execution." Id. STK
ultimately conceded and informed World Class that it was "okay forgoing a parking
contingency" but asked World Class to provide information on "the company that provided
parking services for the previous tenant." Segal Decl. at 12.
2
In the interest of consistency, all page number citations refer to CMIECF pagination.
2
II.
The Lease Agreement
The Lease Agreement and a corresponding Guaranty Agreement were executed by the
parties on June 5, 2015, and several of their provisions are relevant here. Mot. Summ. J. [#79]
Ex. 2-A (Lease Agreement) at 62; Am. Compi. [#14] at 52-53 (Guaranty Agreement).
First, the Lease Agreement contains an "as-is" clause specifying that the Premises were
to be leased "as-is" and without reliance upon any warranty as to the fitness of the Premises for
any particular purpose. Lease Agreement
§
3.1. The "as-is" clause does, however, require World
Class to deliver the Premises to STK "in compliance with" all local codes and regulations. Id.
Second, the Lease Agreement contains a parking disclaimer clause. Lease Agreement
§
3.2. Under the terms of that clause, STK acknowledged and agreed that the Premises "may not
contain sufficient parking" for the Premises's intended use. Id. In turn, World Class agreed "at
the request of [STK] but at no cost to [World Class], to assist [STK] in identifying and locating
offsite parking." Id.
Third, the Lease Agreement contains a provision establishing a contingency period.
Under the terms of that provision, if the Premises were unable to be operated for their intended
use because STK cannot "obtain the necessary permits" despite using "commercially reasonable
best efforts," STK could terminate the Lease Agreement so long as STK provided written notice
on or before August 3,2015. Lease Agreement
§ 2.2(u).3
Fourth and finally, the Lease Agreement contains provisions affecting the timing of
STK's rent obligations. Under Lease Agreement
§
1.1(i), the Rent Commencement Date falls on
the earlier of (i) the date on which STK opened its restaurant to the public, or (ii) February 1,
Cf Mot. Summ. J. [#79] Ex. 3 (Natin Paul Decl.) at 106 ("[T]he parties specifically negotiated a provision
regarding the right of STK and The One Group to investigate whether there was appropriate parking[,] . . . even
though Mr. Segal represented to me that he believed that he had already obtained sufficient parking prior to finalize
[sic] the Lease.").
3
2016, "subject to extension as provided for in Section 28.18." In turn, Lease Agreement
§
28.18
provides the Rent Commencement Date "shall be extended by one day for each such day of
delay" caused by a "Force Majeure Event." The Lease Agreement defines a "Force Majeure
Event" as "any delay[] due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any kind whatsoever which
are beyond the reasonable control of such party." Id.
III.
§
28.6.
Parking Problems
After the parties signed the Lease Agreement, subsequent attempts to locate offsite
parking failed.
See
Segal Decl. at 2 ("In July 2015, One Group retained Lone Star, a parking
consulting company, to assist in securing the deeded parking spaces needed for operation of a
restaurant.
. .
[but] [n]either One Group nor its consultants were ever able to secure the required
number of deeded parking spaces under Dallas' local codes and regulations
. . .
."). Yet, in spite
of the obvious obstacle the parking situation posed to opening a restaurant, STK failed to provide
written notice within the contingency period of intent to terminate the Lease Agreement.
See
Segal Decl. at 3. STK also failed to pay its rent, and in March 2016, STK received a letter from
World Class demanding that STK begin paying rent due under the terms of the Lease
Agreement. Id. STK Group then made two rent payments to World Class "in the hopes that the
needed parking would be found." Id.
The needed parking was not found. In April 2016, STK informed World Class it was
"unable to get car parking," that it had not received any substantial assistance from World
Class,4
and that the City of Dallas (the City) was unwilling to grant STK a parking variance. Segal Decl.
'
Cf Segal Decl. Ex. E at 17 (Sheena Paul: "We have been working with local counsel. . . to prepare for
the parking variance we will need. . . . I think it will be best for us to coordinate efforts on parking; . . . most of the
application will need to be spearheaded by STK but will be supported and reinforced by Landlord.").
at 3. As a result
of these obstacles, STK concluded it could not proceed with the restaurant and
ceased making rent payments to World Class. Id.
Around the same time, STK learned a prior lessee had encountered similar parking
problems and had applied for a parking variance from the City. Id. at 3-4. In conjunction with
the parking variance application, the prior owner of 1899 McKinney Avenue had written a letter
to the City asserting the owner had "tried in vain" to secure an offsite parking agreement but had
been unable to do so. Segal Dccl. at 4. Despite this entreaty, the City had denied the variance
application in January 2014. Id.
In October 2016, World Class and STK arranged an in-person meeting to discuss how to
proceed. Segal Decl. at 4. STK alleges the parties agreed at this meeting that if they were unable
to secure parking or a variance for operation of the restaurant, the parties would cancel the Lease
Agreement and "walk[] away with no claim on the other." Id.
IV.
Procedural Posture
Notwithstanding the parties' alleged agreement to cancel the Lease Agreement if parking
could not be found, World Class filed suit in May 2017 alleging breach of contract. Notice
Removal [#1-1] Ex. A (Pet.) at 13-14. STK then removed the action to this Court on the basis of
diversity jurisdiction and filed counterclaims alleging fraud in the inducement, fraudulent
concealment, negligent misrepresentation, and breach of contract. Not. Removal [#1] at 2-3;
Countercls. [#21] at 10-15. World Class responded by asserting a fraud claim against STK
alleging STK had misrepresented its "attention to detail" and financial condition when, in reality,
it "could not meet the obligations under the Lease.
. .
[and] Guaranty." [#48] at 14-15. World
Class now moves for summary judgment on its breach of contract claims as well as on STK's
5
affirmative defenses and counterclaims. Mot. Summ. J. [#79]. This pending motion is ripe for
review.
Analysis
I.
Legal Standard
Summary judgment shall be rendered when the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine dispute as to any material fact
and that the moving party is entitled to judgment as a matter of law.
Celotex Corp.
v.
Catrett, 477 U.S. 317, 323-25 (1986); Washburn
v.
FED. R. Civ. P.
56(a);
Harvey, 504 F.3d 505, 508
(5th Cir. 2007). A dispute regarding a material fact is "genuine" if the evidence is such that a
reasonable jury could return a verdict in favor of the nonmoving party. Anderson
v.
Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the
court is required to view all inferences drawn from the factual record in the light most favorable
to the nonmoving party. Matsushita Elec. Indus. Co.
v.
Zenith Radio, 475 U.S. 574, 587 (1986);
Washburn, 504 F.3d at 508. Further, a court "may not make credibility determinations or weigh
the evidence" in ruling on a motion for summary judgment. Reeves
v.
Sanderson Plumbing
Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support
the nonmoving party's case, the party opposing the motion must come forward with competent
summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at
586. Mere conclusory allegations are not competent summary judgment evidence, and thus are
insufficient to defeat a motion for summary judgment. Turner
v.
Baylor Richardson Med. Ctr.,
476 F.3d 337, 343 (5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and
unsupported speculation are not competent summary judgment evidence. Id. The party opposing
summary judgment is required to identify specific evidence in the record and to articulate the
precise manner in which that evidence supports his claim. Adams
v.
Travelers Indem. Co. of
Conn., 465 F.3d 156, 164 (5th Cir. 2006). Rule 56 does not impose a duty on the court to "sift
through the record in search of evidence" to support the nonmovant's opposition to the motion
for summary judgment. Id.
"Only disputes over facts that might affect the outcome of the suit under the governing
laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.
Disputed fact issues that are "irrelevant and unnecessary" will not be considered by a court in
ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing
sufficient to establish the existence of an element essential to its case and on which it will bear
the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
II.
Application
World Class contends it is entitled to summary judgment on its breach of contract claims
as well as STK's counterclaims and affirmative defenses. Mot. Summ. J. [#79] at 1. The Court
first considers the parties' breach of contract claims and counterclaims. It then turns to STK's
affirmative defenses and noncontractual counterclaims.
A.
Breach of Contract
In order to prevail on a breach of contract claim, the plaintiff must establish (1) a valid
contract existed; (2) the plaintiff performed or tendered performance; (3) the defendant breached
the contract; and (4) the plaintiff sustained damages as a result of the breach. Valero Mktg. &
Supply Co. v. Kalama Int'l, 51 S.W.3d 345, 351 (Tex.
App.Houston
[1st Dist.] 2001, no pet.).
The parties raise four separate breach of contract claims: (1) World Class alleges STK
breached the Lease Agreement; (2) STK alleges World Class breached the Lease Agreement; (3)
7
World Class alleges One Group breached the Guaranty Agreement; and (4) STK alleges World
Class breached a subsequent oral agreement that STK and World Class would cancel the Lease
Agreement if STK could not find parking. The Court examines each of these claims in turn.
1.
Breach of Lease Agreement by STK
World Class argues it is entitled to summary judgment on its claim that STK breached the
Lease Agreement. Mot. Summ. J. [#79] at 10-11. In response, STK argues summary judgment is
inappropriate because there is a genuine issue of material fact as to (1) whether a valid contract
exists; (2) whether World Class performed or tendered performance; (3) whether STK breached
the Lease Agreement; and (4) the amount of damages sustained by World Class. Resp. [#82] at
17-23.
a.
Existence of a Valid Contract
First, STK argues there is a genuine issue of material fact as to whether a valid contract
exists because there is a factual question as to whether World Class fraudulently induced STK
Group to sign the Lease and Guaranty Agreements by reassuring STK that there was "plenty of
parking nearby in garages and surface lots." Resp. [#82] at 17-18. This argument misses the
mark because fraudulent inducement does not preclude formation of a valid contract. To the
contrary, fraudulent inducement "is a particular species of fraud that arises only in the context of
a contract and requires the existence of a contract as part of its proof." Haase
v.
Glazner,
62
S.W.3d 795, 798-99 (Tex. 2001).
Second, STK argues there is a genuine issue of material fact as to whether a valid
contract exists because there is a factual question as to whether performance was impossible.
Resp. [#82] at 19. This argument also fails. Though impossibility can serve as an affirmative
defense to a breach of contract claim, STK does not explain whether or how impossibility
E1
prevents formation of a contract. See Resp. [#82] at 19 (arguing impossibility "relieves a party to
a contract of its duties" (emphasis added)). The Court therefore concludes STK has failed to
carry its burden of persuasion on this argument.
Finally, STK argues there is a genuine issue of material fact as to whether a valid contract
exists because there is a factual question as to whether World Class failed to deliver the premises
"in compliance with all local codes and regulations
. . .
with respect to the permitted use." Resp.
[#82] at 17; Lease Agreement § 3.1. But this argument goes towards whether World Class
performed under the Lease
Agreementby delivering the premisesand has
no bearing on
whether or not a valid contract existed in the first place. And in any event, STK fails to identify
any code or regulation as to which the Premises were noncompliant.
See
Resp. [#82] at 17, 19-
20 (arguing that World Class must have failed to deliver the premises because "operation of a
restaurant
.
.
.
is impossible under applicable laws and regulations."). In light of these
deficiencies, the Court concludes that STK has failed to carry its burden of persuasion as to this
argument.5
b.
Performance
In addition to arguing that World Class failed to perform by failing to deliver the
premises, STK also argues that World Class failed to perform by "failing to cooperate" with
STK's efforts to seek permits and failing to assist STK in identifying and locating offsite
parking. Resp. [#82] at 20; see also Lease Agreement at
§
2.2(i), 3.2. But STK does not offer
Even setting aside STK's failure to carry its burden of persuasion on this argument, the Court concludes
there is no genuine issue of material fact as to World Class's delivery of the premises to STK in compliance with
applicable local rules and regulations. STK suggests World Class did not deliver the premises in compliance with
local rules and regulations because the premises did not contain sufficient parking. See Resp. [#82] at 17, 19-20. But
STK has not identified any local rule or regulation requiring the premises to contain sufficient onsite parking, and
presumably for this reason, the Lease Agreement explicitly contemplated a search for offsite parking. Lease
Agreement § 3.2. Because there is no suggestion that local rules and regulations required onsite parking and because
the Lease Agreement did not require World Class to deliver offsite parking in conjunction with its delivery of the
premises, the Court concludes there is no genuine dispute that World Class did, in fact, perform by delivering the
premises under the terms of the Lease Agreement.
any details as to how World Class failed to cooperate with STK's efforts to seek permits for its
restaurant. See Resp. [#82] at 20-21. What's more, STK acknowledges that World Class did
assist STK, at least to some degree, in its efforts to identify offsite parking. See Id. at 22
(conceding that World Class "provid[ed] a list of parking lots in the area).
STK implies World Class should have gone to greater lengths to assist STK in its efforts
to find parking and alleges that World Class (1) failed to respond when STK asked for "any
information [World Class may have] on the company that provided parking services for the
previous tenant"; (2) was slow to respond to emails requesting assistance locating parking; (3)
"merely provid[ed] a list of parking lots in the area" when STK asked for assistance locating
parking in April 2016; and (4) failed to provide assistance when STK asked for additional help
locating parking in October 2016. See Resp. [#82] at 20-21. Yet the Lease Agreement does not
require World Class to use best efforts or even commercially reasonable efforts in assisting
STK's efforts to find parking. Compare Lease Agreement
§
3.2 (requiring World Class to "assist
in identifying and locating offsite parking" but "at no cost" to World Class), with Lease
Agreement
§
2.2(u) (requiring STK to use "commercially reasonable best efforts" to open and
operate its restaurant). Further, even if the Lease Agreement was interpreted to require best
efforts on the part of World Class, that requirement would be unenforceable because under Texas
law, best efforts provisions must "provide some kind of objective goal or guideline against which
performance is to be measured[.]" Kevin M Enringer Enters., Inc.
v.
McData Servs. Corp., 646
F.3d 321, 326-27 (5th Cir. 2011) (internal quotation marks omitted) (citing Herrman Holdings,
Ltd. v. Lucent. Techs., Inc., 302 F.3d 552 (5th Cir. 2002); CKB & Assocs. v. Moore McCormack
Petroleum, Inc., 809 S.W.2d 577 (Tex.
App.Dallas
contains no such guideline, see Lease Agreement
10
§
1991, writ denied)). The Lease Agreement
3.2, and absent any further argument from
STK, the Court concludes there is no genuine dispute of material fact that World Class carried
out its obligation under the Lease Agreement to assist STK in its efforts to identify offsite
parking.
Breach
c.
STK argues it did not breach the Lease Agreement by failing to pay rent because the
unavailability of offsite parking cOnstitutes a "Force Majeure Event" triggering an indefinite
postponement of the Rent Commencement Date. See Lease Agreement
§§
1.1(i), 28.18. World
Class disagrees and argues the force majeure clause is only triggered by events that could not
have been anticipated by the parties. Reply [#92] at 15.
The Lease Agreement defines a "Force Majeure Event" as "any delay[] due to strikes,
riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the reasonable control
of such party." Lease Agreement
§
28.6. The scope and effect of this force majeure clause
"depend[] on the specific contract language[] and not on any traditional definition of the term."
Va.
Power Energy Mktg.
v.
Apache Corp., 297 S.W.3d 397, 402 (Tex. App.Houston [14th
Dist.] 2009, pet. denied); see also Roland Oil Co.
2015 Tex. App. LEXIS 1906, at *12_16 (Tex.
v. R.R.
Comm 'n
of Tex., No. 03-12-00247-CV,
App.Austin 2015, pet. denied).
The Court concludes a fact question exists as to whether the unavailability of offsite
parking constitutes a force majeure event forestalling STK's obligation to begin paying rent
under the Lease Agreement. STK was delayed in opening its restaurant because it could not
secure sufficient offsite parking to comply with local rules and regulations prescribed by the
City. Segal Decl. at 3. Thus, STK was arguably delayed by both a cause "beyond the reasonable
control" of
STKthe
unavailability of
parkingas well
11
as by "governmental laws,
regulations[,] or restrictions" which prohibited STK from operating a restaurant without such
parking.
See
Lease Agreement
§
28.6.
Though the unavailability of parking and the City's parking restrictions both satisfy the
requirement that Force Majeure Events be beyond the reasonable control of both parties, World
Class argues these circumstances nevertheless fall outside the scope of the clause because the
clause implicitly excludes occurrences or causes which the party might have reasonably
anticipated. Resp. [#82] at 15. To the extent the force majeure clause is ambiguous, World Class
might be able to establish at trial that such an implicit limitation exists. The text of the clause,
however, does not clearly and unambiguously require that Force Majeure Events be beyond the
reasonable anticipation of the party seeking to delay the Rent Commencement Date.
Agreement
§
28.6;
cf Roland Oil Co.,
See
Lease
2015 Tex. App. LEXIS 1906, at *12_16 (finding similar
force majeure clause to be unambiguous and "subject to only one reasonable interpretation[:]
.
any potential triggering event of the clause must be beyond the control of the party"). Thus, a
fact issue exists as to whether the force majeure clause encompasses events anticipated by the
parties and whether the unavailability of parking triggered the clause. This fact issue is material
because if the clause was triggered by STK's inability to locate parking, then STK's obligation to
pay rent never materialized and STK did not breach the Lease Agreement when it failed to pay
rent to World Class.
In addition to arguing that STK breached the Lease Agreement by failing to pay rent,
World Class also contends STK breached the Lease Agreement by failing to use commercially
reasonable best efforts to open its restaurant and to avoid the placement of liens on the property.
Mot. Summ. J. [#79]. But World Class does not provide any further argument or evidence in
support of these contentions, and the Court concludes genuine issues of material fact exist as to
12
whether STK used commercially reasonable best efforts to open its restaurant and as to whether
STK fulfilled its alleged obligation to avoid placement of liens on the property.
In light
of the fact issues identified above, World Class is not entitled to summary
judgment on its breach of contract claim.
d.
Damages
STK contends a fact issue exists as to damages because the damage calculations
submitted by World Class contain improper items and fail to include offsets to which STK is
entitled.
See
Resp. [#82] at 23 (alleging World Class "fail[ed] to account for the security deposit
and other good faith rent payments" and improperly included items beyond the Guaranteed
Minimum Rent in connection with damages claimed under the Guaranty Agreement). STK also
alleges World Class failed to use reasonable efforts to mitigate its damages because World
Class's "sole attempt to mitigate its damages" consisted of "posting a flyer for the property" on a
real estate website. Id. at 23; Segal Decl. at 4. Although World Class argues STK has failed to
adduce specific evidence creating a fact issue as to damages, the Court concludes a fact issue
exists as to whether World Class used reasonable efforts to mitigate its damages.
2.
Breach of Lease Agreement by World Class
STK argues there is a genuine issue of material fact precluding summary judgment on its
breach of contract counterclaim because World Class failed to deliver the premises in
compliance with all local codes and regulations. Resp. [#82] at 25-26. As the Court has already
explained above, STK has failed to carry its burden of persuasion with respect to its argument
that World Class failed to deliver the premises.
See supra
Section II.A. l.a. Because STK does
not offer any further argument or evidence in support of its breach of contract counterclaim, the
Court grants World Class's motion for summary judgment as to that claim.
13
3.
Breach of Guaranty Agreement by STK
To recover on a breach of guaranty claim, a plaintiff must establish (1) "the existence and
ownership of the guaranty contract"; (2) "the terms of the underlying contract by the holder"; (3)
"the occurrence of the conditions upon which liability is based"; and (4) "the failure or refusal to
perform the promise by the guarantor." See, e.g., Lee
S.W.3d 719, 720-21 (Tex.
v.
Martin Marietta Materials Sw. Ltd., 141
App.San Antonio 2004, no pet.).
World Class contends it is entitled to summary judgment on its claim that One Group
Hospitality breached the Guaranty Agreement. Mot. Summ. J. [#79] at 11. Yet because the Court
has concluded a genuine issue of material fact exists as to whether STK incurred an obligation to
pay rent under the Lease Agreement, a genuine issue of material fact also exists as to whether
One Group Hospitality breached the Guaranty Agreement by failing to provide World Class with
"full and prompt payment and performance" of STK's obligations under the Lease Agreement.
See Guaranty Agreement; see also Lee, 141 S.W.3d at 720-21 ("To recover on a guaranty
contract, a company must show
.
.
.
the occurrence of the conditions on which liability is
based[.]"
4.
Breach of October 18, 2016 Oral Agreement
STK contends World Class orally promised or agreed during an October 18, 2016
meeting that the parties would cancel the Lease Agreement and "walk[] away with no claim on
the other" if the parties were unable to secure parking or a variance allowing operation of a
restaurant on the Premises. Resp. [#82] at 26; see also Segal Decl. at 4. World Class argues it is
entitled to summary judgment on this breach of contract claim because the Lease Agreement and
Guaranty Agreement bar oral modification or termination of those agreements. Reply [#92] at
14
16. World Class also argues it is entitled to summary judgment because the statute
of frauds
requires a promise or agreement about the lease of real estate to be in writing. Id.
The Court concludes there is an issue of fact as to whether the Lease Agreement bars the
oral agreement at issue here. Under Lease Agreement
§
28.13, "no agreement shall be effective
to change, modify or terminate" the Lease Agreement unless in writing and signed by the party
against whom the change is asserted. Similarly, the Guaranty Agreement provides it "may not be
changed, modified, discharged or terminated orally or in any manner other than by an agreement
in writing signed by Guarantor and Landlord." Guaranty Agreement at 53. But STK does not
contend the alleged oral agreement is effective to terminate the Lease Agreement. Rather, STK
argues the parties entered into a predicate oral agreement to subsequently execute a termination
of the Lease Agreement.
See
Resp. [#82] at 26; Segal Decl. at 4. While that subsequent
termination of the Lease Agreement would have to be in writing to satisfy the contractual
provisions identified above, the explicit text of these provisions does not unambiguously
encompass the predicate oral agreement at issue here. To the extent these contractual provisions
are ambiguous, a genuine issue of material fact exists as to whether the Lease Agreement and
Guaranty Agreement bar enforcement of the oral agreement at issue here.
Further, the Court concludes the statute of frauds does not entitle World Class to
summary judgment on this breach of contract claim. World Class argues the statute of frauds
bars STK from asserting an oral agreement modifying or cancelling the terms of the Lease
Agreement. Reply [#92] at 16. But because the statute of frauds is an affirmative defense, World
Class must plead it before asserting it as a basis for summary judgment.
Since World class has not done so,
see
FED.
R.
CIV. P.
8(c)(1).
World Class Answer [#53] at 7, World Class is not
15
entitled to summary judgment on either Its unpleaded affirmative defense or STK's breach of
contract claim.
B.
Affirmative Defenses
STK asserts eight affirmative defenses: failure to mitigate damages, waiver, release,
estoppel, laches, unclean hands, failure to satisfy a condition precedent, and fraudulent
inducement. STK Answer [#15] at 7. World Class seeks summary judgment on all eight of these
affirmative defenses on the ground that STK cannot marshal any evidence in support of these
defenses. Mot. Summ. J. [#79] at 12. In its response, STK only addressed two of these
affirmative defenses: failure to mitigate damages and fraudulent inducement. See Resp. [#82] at
23-25. The Court therefore grants summary judgment in favor of World Class on STK's
unsupported affirmative defenses of waiver, release, estoppel, laches, unclean hands, and failure
to satisfy a condition precedent. With respect to STK's affirmative defense of failure to mitigate
damages, the Court concludes genuine issues of material fact preclude summary judgment at this
time. See supra Section II.A. 1.
That leaves only STK' s affirmative defense of fraudulent inducement. In order to prevail
on a fraudulent inducement claim, a defendant must establish (1) the plaintiff made a material
representation that was false; (2) the plaintiff "knew the representation was false or made it
recklessly as a positive assertion without any knowledge of its truth"; (3) the defendant intended
to induce the plaintiff to act upon the representation; and (4) the plaintiff "actually and justifiably
relied upon the representation and suffered injury as a result." JPMorgan Chase Bank, NA.
v.
Orca Assets G.P., 546 S.W.3d 648, 654 (Tex. 2018) (internal quotation marks omitted).
World Class contends it is entitled to summary judgment on this affirmative defense
because STK cannot establish it justifiably relied on a representation made by World Class
16
regarding the availability of parking. Reply [#921 at 9-11. Specifically, World Class argues the
Lease Agreement contained an "as-is" clause that barred STK from relying on any prior
representation made by World Class. Mot. Summ. J. [#79] at 13-15. World Class also. argues
STK could not have justifiably relied on World Class's parking representations because the
Lease Agreement contains specific provisions explicitly acknowledging the potential
unavailability of parking. Reply [#92] at 9-11.
The Court concludes genuine issues of material fact preclude summary judgment on
STK's affirmative defense of fraudulent inducement. As an initial matter, an "as-is" clause in a
contract does not bar a party from asserting it was fraudulently induced to enter into that
contract. See Prudential Ins. Co. of Am.
v.
Jefferson Assocs., 896 S.W.2d 156, 162 (Tex. 1995)
("A buyer is not bound by an agreement to purchase something 'as is' that he is induced to make
because of a fraudulent representation or concealment of information by the seller."). By
contrast, an explicit, unambiguous contractual provision directly contradicting an alleged
misrepresentation precludes a party from justifiably relying on that misrepresentation as a matter
of law. JPMorgan, 546 S.W.3d at 658 ("As Texas courts have repeatedly held, a party to a
written contract cannot justifiably rely on oral misrepresentations regarding the contract's
unambiguous terms." (cleaned up) (internal quotation marks and citations omitted)). Yet World
Class has not identified
a contractual
provision directly contradicting the alleged
misrepresentation relied on by STK. Compare Segal Decl. at 8 (assuring STK that there was
"plenty" of offsite parking nearby), with Lease Agreement
§
3.2 (acknowledging the Premises
did not contain sufficient onsite parking). The Court therefore concludes World Class has failed
to carry its burden of persuasion and denies summary judgment as to STK's affirmative defense
of fraudulent inducement.
17
C.
Remaining Counterclaims
The Court has already addressed STK' s breach of contract counterclaims above. See
Section II.A.3-4. In addition to those breach of contract counterclaims, STK also asserts
counterclaims
for
fraudulent
inducement,
fraudulent
concealment,
and
negligent
misrepresentation. Countercls. [#21] at 10-13. World Class seeks summary judgment on each of
these counterclaims. Mot. Summ. J. [#79] at 11-16.
First, World Class argues STK's fraud and negligent misrepresentation counterclaims are
barred by an economic loss rule. Mot. Summ. J. [#79] at 18-19. Economic loss
rules6
operate to
bar parties from recovering purely economic losses based on negligence or strict liability.
Sharyland Water Supply Corp.
v.
City ofAlton, 354 S.W.3d 407, 415 (2011). But "[t]ort damages
are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent
representations are later subsumed in a contract or whether the plaintiff only suffers an economic
loss related to the subject matter of the contract." Formosa Plastics Corp. USA v. Presidio
Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). Thus, no economic loss rule applies
to STK's fraud claims. And while an economic loss rule does apply to bar STK from recovering
purely contractual economic losses such as benefit of the bargain damages, in this case, STK has
sought reliance damages distinguishable from its claimed contractual damages. See Resp. [#82]
at 18 ("[World Class's] representation resulted in substantial damages to STK Group in that it
incurred approximately $672,674 in attempting to build out the restaurant on the property."); id.
[#82-3] Siluk Decl. at 1; see also Sterling Chems., Inc. v. Texaco, Inc., 259 S.W.3d 793, 797
(Tex.
App.Houston
[1St Dist.] 2007, pet. denied) ("Under the economic loss rule, a
plaintiff
See Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 415 (2011) ("[The economic loss
rule] is something of a misnomer[J . . . as 'there is not one economic loss rule broadly applicable throughout the
field of torts, but rather several more limited rules that govern recovery of economic losses in selected areas of the
law." (quoting Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 WASH. & LEE L.
REv. 523, 534-35 (2009))).
6
I:1
may not bring a claim for negligent misrepresentation unless the plaintiff can establish that he
suffered an injury that is distinct, separate, and independent from the economic losses
recoverable under a breach of contract claim."). The economic loss rule therefore does not bar
STK from recovering on its negligent misrepresentation claim.
Second, World Class argues STK's fraudulent concealment counterclaim fails as a matter
of law because World Class did not have a duty to disclose any information about parking. Reply
[#921 at 11-13. In order to prevail on a claim
of fraud based on concealment of a material fact,
the party asserting the claim must establish it was ignorant of the fact and lacked an equal
opportunity to discover the truth. Bradford v.
Vento,
48 S.W.3d 749, 754-55 (Tex. 2001).
The Court agrees with World Class that STK did not have a duty to disclose information
related to the availability of parking because STK had an equal opportunity to discover the truth
about the availability of parking. Like World Class, STK had an opportunity before signing the
Lease Agreementand after signing the Lease Agreement but before expiration of the
Contingency
Periodto
contact nearby parking lots and assess the feasibility of locating offsite
parking. Similarly, although STK complains that World Class should have disclosed that a prior
owner of the property had been unable to secure offsite parking, STK might have discovered this
fact for itself by accessing publically available records. The Court therefore grants summary
judgment in favor of World Class on STK's fraudulent concealment claim on the ground that
World Class had no duty to disclose parking information STK had an equal opportunity to
discover.
Third, World Class seeks summary judgment on STK's negligent misrepresentation
counterclaim on the ground that claim is barred by the statute of limitations. Mot. Summ. J. [#79]
at 17-18. World Class argues the statute of limitations has run because a cause of action accrues
19
for statute of limitations purposes when the claimant suffers a pecuniary loss. Id. World Class
posits that STK must have suffered a pecuniary loss no later than August 3, 201 5the end of the
contingency periodbecause that is the date on which STK became irrevocably liable for rent.
Id. But, as explained above, a genuine issue of material fact exists as to whether the rent
commencement date was postponed by the contract's force majeure clause.
See supra
Section
II.A. 1 .c. Correspondingly, a fact issue exists as to the date on which STK first suffered a
pecuniary loss by incurring an obligation to pay rent. Because it is unclear when STK first
suffered a pecuniary loss, the Court concludes World Class has failed to carry its burden of
persuasion on this argument. The Court therefore denies World Class's Motion for summary
judgment as to this counterclaim.
Conclusion
Genuine issues of material fact preclude summary judgment on World Class's breach of
contract claims as well as on STK' s claim that World Class breached an October 18, 2016 oral
agreement to cancel the Lease Agreement if STK could not find parking. The Court also
concludes factual issues preclude summary judgment on STK's fraudulent inducement
counterclaimlaffirmative defense and negligent misrepresentation counterclaim as well as STK's
affirmative defense of failure to mitigate damages. But the Court grants summary judgment on
STK's affirmative defenses of waiver, release, estoppel, laches, unclean hands, and failure to
satisfy a condition precedent, on STK's fraudulent concealment counterclaim, and on STK's
claim that World Class breached the Lease Agreement.
Accordingly,
IT IS ORDERED that STK's Motion to Seal [#83] is GRANTED;
20
IT IS FURTHER ORDERED that World Class's Motion to Seal [#100] is
GRANTED;
IT IS FURTHER ORDERED that World Class's Motion for Summary Judgment
[#79] is GRANTED IN PART and DENIED IN PART as described in this opinion; and
IT IS FURTHER ORDERED that World Class's Motion to Strike [#103] is
DISMISSED AS MOOT because the evidence which World Class sought to strike did
not alter or affect the Court's disposition of World Class's summary judgment motion;
and
IT IS FINALLY NOTED that the Court's rulings herein are without prejudice to
any potential evidentiary objections the parties may seek to raise at trial.
SIGNED this the 13 day of May 2019.
SAM SPA
SENIOR UNITED
21
STAES DISTRICT JUDGE
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