Enniss Family Realty I, LLC v. Schneider Nat'l Carriers, Inc., CIVIL ACTION NO. 3:11cv739-KS-MTP

ENNISS FAMILY REALTY I, LLC PLAINTIFF

v.SCHNEIDER NATIONAL CARRIERS, INC. DEFENDANT

CIVIL ACTION NO. 3:11cv739-KS-MTP

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI JACKSON DIVISION

SO ADJUDGED: June 7, 2013

MEMORANDUM OPINION

This cause comes before the Court for ruling following a bench trial held on February 14 and 15, 2013. Upon due consideration of the testimony, exhibits, and arguments presented at trial, as well as the parties' post-trial briefs, the Court is ready to rule.

I. BACKGROUND

This lawsuit centers upon a dispute between the Plaintiff Enniss Family Realty I, LLC ("Enniss"), the landlord under a commercial lease agreement, and the Defendant Schneider National Carriers, Inc. ("Schneider"), the tenant under the agreement, regarding the monthly rental amount due beginning in September of 2009. The parties do not dispute that a base monthly rental fee of $38,750.00 was required under the terms of the lease agreement. The rub lies in calculating adjustments to that base fee pursuant to changes in the Consumer Price Index ("CPI").¹

On November 7, 2011, Enniss filed a Complaint for Declaratory Judgment [1-1] in the Chancery Court of Rankin County, Mississippi, concerning its dispute withSchneider over rental payments. On December 2, 2011, Schneider removed the proceeding to this Court on the basis of diversity of citizenship jurisdiction under Title 28 U.S.C. § 1332. (See Notice of Removal [1].) On February 1, 2012, Enniss filed its Second Amended Complaint for Declaratory Judgment [19], requesting a declaratory judgment as to the amount of all payments due to Enniss under the lease agreement and a monetary judgment in the amount of all past due payments.

On September 21, 2012, Enniss filed its Motion for Summary Judgment [44], asking that the Court find as a matter of law that the lease requires Schneider to pay $49,807.82 per month effective September 1, 2009; that the lease requires Schneider to pay a five percent (5%) monthly penalty on all outstanding rental payments; and that the lease requires Schneider to reimburse Enniss for its attorney's "fees generated in defense of the Lease Agreement." (See Pl.'s Mem. of Law in Supp. of Mot. for SJ [45] at p. 7.) On January 2, 2013, the Court entered its Memorandum Opinion and Order [66], which, inter alia, denied the Motion for Summary Judgment [44]. The Court found the relevant portions of the parties' agreement ambiguous, and thus, reserved for trial the determination of the amount due under the lease upon the consideration of parol or extrinsic evidence. The Court further found that a summary judgment ruling enforcing the lease's interest penalty provision and attorney's fees reimbursement provision could not be made given the subject ambiguity and necessity of trial.

On February 14 and 15, 2013, a bench trial was held in this cause at the Federal Courthouse in Jackson, Mississippi. At the conclusion of Enniss's case-in-chief, Schneider moved for judgment as a matter of law. The Court granted the motion in part, finding the lease's interest penalty provision unenforceable because the interestclaimed constituted a significant penalty exceeding the principal purportedly owed, and because it appeared that Enniss failed to comply with certain conditions precedent to enforcement of the subject lease provision.² At the conclusion of trial, the Court requested proposed findings of fact and conclusions of law from the parties. Upon review of the evidence presented at trial and the parties' post-trial submissions, the Court renders the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a):

II. FINDINGS OF FACT

In 1999, Schneider, as tenant, entered into a Standard Commercial Lease Agreement (the "Lease" or "Agreement") [Plaintiff's Exhibit 1 ("P-1")] with Anika & Associates, Inc. ("Anika"), as landlord, for three (3) acres of land including seventeen thousand (17,000) square feet of industrial/warehouse space located at 301 East Metro Parkway, Brandon, Mississippi, 39042 (the "Subject Property"). The Lease was signed by representatives of Anika and Schneider in May of 1999 and had a "Commencement Date" of no later than July 26, 1999. The Subject Property is adjacent to a General Motors distribution facility. Schneider intended to utilize the Subject Property to provide certain delivery transportation services to General Motors. The Lease had a term of 240 months, expiring in 2019. However, Schneider had the option to terminate theLease early (provided that it was not in default) in the event that its service contract with General Motors was not renewed.

The beginning rent was $11,758.33 for the first sixty (60) months of the Lease. CPI adjustments were to be made on the 61st, 121st and 180th months (2004, 2009, and 2014, respectively) following the Commencement Date. The first CPI adjustment was made in or about September, 2004, and the rent was increased to $13,170.48. This adjustment occurred without issue.

On or about July 24, 2006, the Lease was amended to account for an expansion of the Subject Property. (See 1st Amendment to Lease (P-2).) The definition of the "Premises" in the Lease was changed to include a "Building" encompassing approximately fifty thousand (50,000) square feet and "Property" totaling approximately six (6) acres. Also, the "Base Rent," as originally defined in the Lease exclusive of CPI adjustments, was changed to $38,750.00 per month effective November 1, 2006 or the later date that Schneider actually obtained possession of the Premises. Beginning September 1, 2009, and running until August 31, 2019, the "Base Rent" was to be "$38,750.00 (plus CPI)". The Amendment also foreclosed Schneider's option to terminate the Lease prior to January 1, 2011. Further, Schneider and Anika ratified and adopted all of the remaining terms and conditions of the Lease.

On or about October 25, 2006, Schneider and Anika amended the Lease a second time. (See 2nd Amendment to Lease (P-3).) This Amendment extended the Lease term to March 31, 2027; changed "Base Rent" to $38,750.00 per month effective April 1, 2007 or the later date that Schneider actually obtained possession of the Premises; and set "Base Rent" between September 1, 2009 and March 31, 2027, at"$38,750.00 (plus CPI)". The parties again ratified and adopted all of the remaining terms and conditions of the Lease. Steve Parent, Schneider's Director of Facilities in 2006 and corporate representative at the time of trial, signed both the 1st and 2nd Amendments on behalf of Schneider.

The expansion of the Subject Property, including the thirty-three thousand (33,000) square feet addition to the Building on the Premises, was completed in or about April of 2007. Schneider began to occupy the expanded Premises, including the now fifty thousand (50,000) square feet Building, on or about April 24, 2007.

In May, 2007, Enniss purchased the Subject Property from Anika, and Anika assigned all rights and obligations under the Lease to Enniss. (See Assignment and Assumption of Lease and Rent (P-4).) Thus, Enniss became Schneider's landlord. Carolyn Sandoval, a member of Enniss and its Controller since 2002, testified at trial that Enniss was looking to purchase investment property with a rate of return or capitalization rate of 7 to 10 percent. (See Trial Transcript "Tr." at pp. 24-25.) Enniss paid approximately $5.2 million for the Subject Property, and the $38,750.00 rental amount allowed Enniss to realize its expected rate of return. (See Tr. at pp. 117, 121-22.)

The Court finds by a preponderance of the evidence that either Anika or a representative of Anika drafted the Lease and its Amendments. The testimony at trial established that neither Enniss nor Schneider drafted these instruments. Thus, it is reasonable to infer that Anika, the only other contracting party, is responsible for preparing the Agreement.

From approximately June of 2007 through August of 2009, Enniss billed andSchneider paid monthly rent in the amount of $38,750.00.³ (See Invoices (P-11); (P-13) at Ennissdocs202-10.) A CPI adjustment was scheduled to occur in September, 2009. That is when the dispute between Enniss and Schneider arose. Since the dispute turns on calculating a CPI adjustment under the Lease, the Court sets forth below the relevant Lease and Amendment terms:

Lease (P-1)

II. Base Rent

A. Tenant agrees to pay to Landlord base rent for the Premises, in advance, without demand, deduction or set off, for the entire term hereof at the rate of Eleven Thousand Seven Hundred Fifty Eight and 33/100 Dollars ($11,758.33) per month, in advance, except that the rent due for the first month of the term shall be due on the date of execution of this Lease. Thereafter one such monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the commencement date during the term hereof, except that the rental payment for any fractional calendar month at the commencement or end of the Lease period shall be prorated.

B. CPI Adjustment. The rent shall be adjusted commencing on the sixty-first month following the Commencement Date, on the One Hundred Twenty First month and on the One Hundred Eightieth month thereafter (the "Adjustment Date") by the percentage increase (if any) in the Consumer Price Index from the Commencement Date to each Adjustment Date, including any extension thereof. The base for computing the adjustment is the Consumer Price Index-All Urban Consumers, All Items ("CPI-U"), for the Southern Urban Area published by the United States Department of Labor, Bureau of Labor Statistic, in which 1982-84=100 (the "Index"), which is published for August, 1999 (the "Beginning Index"). If the Index published nearest the Adjustment Date ("Adjustment Index") has increased over the Beginning Index, the Rent specified in Paragraph II.A. shall be adjusted by subtracting the Beginning Index from the Adjustment Index,

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