Acken v. Kroger Co.

58 F.Supp.3d 620

William B. ACKEN, Jr., et al., Plaintiffs

v.The KROGER COMPANY, d/b/a Bluefield Beverage, Defendant.

Case No. 1:14CV00011.

United States District Court, W.D. Virginia, Abingdon Division.

Signed Nov. 10, 2014.

Roger W. Mullins, Roger W. Mullins, PLLC, Tazewell, Virginia, and Steven R. Minor, Elliott Lawson & Minor, Bristol, VA, for Plaintiffs.

Bryan Grimes Creasy and Justin E. Simmons, Johnson, Ayers & Matthews, P.L.C., Roanoke, VA, for Defendant.

OPINION AND ORDER

JAMES P. JONES, District Judge.

In this diversity action arising under Virginia law, the facts show that a commercial tenant gave proper notice of nonrenewal of the lease. Shortly before the lease term ended, the property was damaged by thieves. Following termination, the tenant—mistakenly, it claims—continued to pay monthly rent for a period of time. The landlord and tenant dispute the responsibility for the cost of repair and alleged consequential damages, as well as whether the landlord must repay the rent payments made after the termination of the lease.

For the following reasons, I will grant in part and deny in part cross motions for summary judgment. I find that the tenant breached the insurance provision of the lease by not paying for repairs, but that the landlord is not entitled to consequential damages and must repay the rent payments made after termination of the lease.

I.

This action was initially filed in state court by the owners of the property, William B. Acken, Jr. and Tammy Lynn Acken (the “Ackens”), against their tenant, The Kroger Company, doing business as Bluefield Beverage (“Kroger”). Kroger timely removed the case to this court pursuant to 28 U.S.C. §§ 1441 and 1446, with subject-matter jurisdiction existing pursuant to 28 U.S.C. § 1332(a). After removal, the Ackens filed an Amended Complaint. In it, they allege breach of contract, negligence, and waste. The Ackens seek various damages, including costs of repair for damaged heating, ventilation, and air conditioning (“HVAC”) units located on the property leased by Kroger, lost rental income, attorneys' fees, holdover rent, and pre-judgment interest. Kroger has asserted a Counterclaim against the Ackens alleging conversion and unjust enrichment associated with the alleged overpayment of rent.

The parties have now filed cross-motions for summary judgment. The Ackens seek summary judgment on their claims alleging failure to repair or pay for the damage to the HVAC units, a holdover claim, and Kroger's counterclaim for conversion and unjust enrichment. Kroger seeks summary judgment on all claims asserted by the Ackens as well as its Counterclaim. The parties have briefed and orally argued their motions and they are ripe for decision.

II.

The following facts are taken from the summary judgment record and unless otherwise stated, are undisputed.

On September 1, 2010, the parties to this case entered into a written agreement (the “Lease”) for the lease of a building owned by the Ackens in Bluefield, Virginia (the “Premises”). Kroger, a retail grocery chain, intended to use the Premises as a warehouse for one of its former enterprises, Bluefield Beverage.

The Lease was initially for a one-year term beginning on January 1, 2011, and expiring on December 31, 2011. It provided an option for four additional renewal terms of the same duration. The Lease required 90–days notice before the expiration of a lease term to avoid automatic renewal for another one-year term.

The annual rent for the initial term was $179,200, which was to be paid in 12 monthly installments of $14,933.33. The annual rent was set to increase by $3,200 during each renewal term.

Throughout the Lease, various provisions referenced Kroger's obligation to maintain the Premises. For example, under the “Use and Occupancy” provision, the Lease stated that “Tenant shall not commit or permit any waste, damage, disfigurement or injury to the Premises, or to the improvements from time to time thereon made or fixtures or equipment located thereon.” (Def.'s Br. in Supp. of Mot. for Summ. J. Ex. 2, at § 3.1, ECF No. 25–2.) Similarly, under the “Surrender of Premises” provision, the Lease stated that “the Premises ... shall be surrendered to Landlord in good and sanitary order, condition and repair except for ordinary wear and tear.” (Id. at § 17.) Under the “Alterations” provision, the Lease also provided that “Tenant shall surrender the Premises in as good condition as they are now, ordinary wear and tear excepted.” (Id. at § 6.1.)

The Lease also contained a triple net provision, requiring Kroger to pay “its prorata share of real estate taxes, utilities, repairs and routine maintenance expenses in connection with the Premises, except as otherwise provided in this Lease.” (Id. at § 5.1.) Kroger was required to “not cause or permit any waste, damage or injury to the Premises” and “perform all ordinary repairs and maintenance in and about the Premises as Tenant deems necessary to prevent waste, damage or injury to the Premises, ordinary wear and tear and damage from insured casualty excluded and excepted. ” (Id. at § 5.4 (emphasis added).) In turn, the Lease required that

[i]f, during the term hereof, the Premises shall be damaged or destroyed by fire or any other casualty, in whole or in part, Landlord shall, with reasonable dispatch and at its own cost and expense, but only to the extent funds are available from the insurance proceeds, if any, restore the Premises to a kind and quality substantially similar to that existing immediately prior to the destruction or damage.

(Id. at § 9.1 (emphasis added).) These provisions—Sections 5.4 and 9.1 of the Lease—required that any repairs necessitated by casualty loss to the Premises were to be covered by insurance proceeds.

Kroger was obligated to insure the Premises “for the mutual benefit of Tenant and Landlord.” (Id. at § 5.3.) Kroger was required to obtain “[a] standard fire and all risk insurance policy insuring the building constituting a part of the Premises for the estimated full replacement value thereof.” (Id. at § 5.3(A).) As an alternative to this requirement, Kroger had “the right to elect to insure or self insure the Premises and/or Common Area against fire and casualty upon delivery of notice of such election to Landlord.” (Id. at § 5.3(C).) Kroger elected to self insure the Premises. The parties have not provided any documents, other than the Lease, that set forth any terms or limitations of the self insurance coverage provided by Kroger.

In January 2012, during the first renewal term of the Lease, Kroger decided to shut down Bluefield Beverage as of April 2012. On April 10, 2012, Kroger notified the Ackens that it was terminating the Lease at the end of the first renewal term on December 31, 2012. Kroger thus satisfied the 90–day notice of termination requirement.

When Kroger ceased operations at the Premises, it began to remove its equipment, products, and personnel. By November 2012, the Premises were empty.

On or about December 9, 2012, prior to the termination of the Lease, copper piping was stolen from four exterior HVAC units located on the Premises. The theft of the copper piping caused significant damage to the HVAC units. Mr. Acken discovered the damage, which he reported to Kroger. Kroger then contacted the police. The police, however, were unable to determine who committed the theft or how the individuals responsible had gained access to the Premises.

At the time the HVAC units were damaged, Kroger was employing a security firm to monitor the Premises. The Premises were also secured by a perimeter fence with two locking gates.¹

Prior to the theft of the copper piping, there had been no vandalism, theft, or other type of criminal activity at the Premises or in its vicinity during the term of the Lease. Furthermore, the individuals responsible for the copper piping theft did not steal copper piping from the HVAC units of two other buildings located near the Premises. The two other buildings shared the same perimeter fence and locking gates, and were owned by the Ackens.

Before vacating the Premises, Kroger made various repairs and returned the keys to the Ackens. Kroger completed these acts prior to December 31, 2012. Kroger, however, did not repair the damage to the HVAC units prior to the termination of the Lease.

In January 2013, the Ackens demanded that Kroger pay for repairs to the damaged HVAC units. Both parties have obtained various repair estimates. While Kroger surrendered the Premises in December 2012, it continued to make monthly rental payments to the Ackens until October 2013, when it discovered its error. The payments made during this 10–month period totaled $162,458.20. The Ackens never notified Kroger of their receipt of the 2013 payments, but did deposit the checks. The Ackens contend that they believed that the 2013 rental payments were made in response to their demand that rent be paid while they were seeking repair of the HVAC units.

After Kroger discovered its error it stopped payments and demanded the return of the 2013 payments, which the Ackens refused. Kroger subsequently offered the Ackens the option to retain a portion of the 2013 payments in the amount of a HVAC repair estimate, if the balance was returned to Kroger. The Ackens rejected Kroger's offer and filed this suit.

To date, the HVAC units have not been repaired and the Premises have not been rented to another tenant. The Ackens say they have made attempts to rent or sell the Premises since April 2012, but their efforts have been unsuccessful. The Ackens have not claimed that any prospective tenant or buyer has raised concerns regarding the unrepaired status of the HVAC units.

III.

Summary judgment is appropriate when the record “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 relevant inquiry is “whether the evidence presents a sufficient disagreement to require submission to a jury or...