ITT Educ. Servs., Inc. v. AP Consol. Theatres II Ltd. P'ship, 4:16CV00055 JLH

195 F.Supp.3d 1031

ITT EDUCATIONAL SERVICES, INC., Plaintiff

v.AP CONSOLIDATED THEATRES II LIMITED PARTNERSHIP, Defendant.

No. 4:16CV00055 JLH

United States District Court, E.D. Arkansas, Western Division.

Signed July 19, 2016

Joseph Wayne Price, II, Michael Norris Shannon, Quattlebaum, Grooms & Tull PLLC, Little Rock, AR, for Plaintiff.

Andrew King, Jess L. Askew, III, Kutak Rock LLP, Little Rock, AR, for Defendant.

OPINION AND ORDER

J. LEON HOLMES, UNITED STATES DISTRICT JUDGE

This case concerns a commercial lease. The central issue is whether a letter agreement to renew the lease but for less space than during the original term, subject to the execution of a formal lease amendment, is enforceable when no formal lease agreement was ever executed.

The parties are ITT Educational Services, Inc., and AP Consolidated Theatres II Limited Partnership. They entered into a lease in October of 2010 for ITT to rent an entire building owned by AP. The lease term ended May 31, 2016. In early 2015 the parties began negotiating for the renewal of the lease, but ITT wanted to renew for only part of the building. In September of 2015, ITT wrote a letter proposing to renew the lease for five years for approximately half of the building. That proposal stated several terms of the renewal but also that it was subject to "a mutually agreeable lease amendment." AP accepted the proposal. While the parties were exchanging drafts of a lease amendment, AP entered into a lease with Little Scholars of Arkansas Foundation, d/b/a LISA Academy, for the entire building and informed ITT it would be required to vacate the building by May 31, 2016.

On February 2, 2016, ITT commenced this action against AP seeking a declaratory judgment, injunctive relief and specific performance. ITT alleged one claim for breach of contract and one for promissory estoppel. In an amended complaint, Count I sought a declaratory judgment that AP breached an agreement to execute an amendment to the lease agreement; Count II alleged that the letter agreement formed a contract that AP breached by entering into an agreement to lease the building to LISA Academy and sought injunctive relief with an alternative request for damages; Count III alleged a claim for promissory estoppel; Count IV alleged that AP breached an agreement to negotiate in good faith; and Count V alleged that AP breached the original lease by showing the property to representatives of LISA Academy without giving ITT notice of the intrusion. On February 24, this Court granted a motion to expedite the proceedings and scheduled an evidentiary hearing for March 21, 2016, to address whether ITT was entitled to specific performance, an injunction, or other equitable relief. Before the evidentiary hearing, however, ITT found an alternative space to rent, which rendered its claims for equitable relief moot, so the hearing was cancelled.

AP has now filed a motion for summary judgment arguing that ITT's claims for specific performance, injunctive relief and declaratory relief are moot; the statute of frauds prevents any contract claim based on the letter agreement; the promissory estoppel claim is without merit; Arkansas does not recognize a cause of action for failure to negotiate in good faith; and the breach of contract claim for showing the property is trivial and lacks merit. ITT has responded under seal to AP's motion for summary judgment and conceded the claims for specific performance, injunctive relief and declaratory relief.¹

ITT has filed a motion for leave to file a second amended complaint that would remove the claims for specific performance, injunctive and declaratory relief but would add a claim for fraud and seek compensatory and punitive damages. AP opposes that motion.

For the following reasons, AP's motion for summary judgment is granted in part and denied in part, and ITT's motion for leave to file a second amended complaint likewise is granted in part and denied in part.

I. SUMMARY JUDGMENT

A. THE UNDISPUTED FACTS

ITT and AP entered into a lease agreement in 2010. Document #15-1. Pursuant to that lease, ITT rented from AP the 31,796 square foot building located at 12200 Westhaven Drive, Little Rock, Arkansas 72211, along with the 5.8735 acres of land on which it sits. Id. at 6. The initial lease term was for five years, expiring on May 31, 2016, and included an option to extend for an additional five years. Id. at 7 and 31.

In or around March of 2015, the parties began to negotiate for another five year term. See Document #15-2. On March 10, 2015, Zachary Lee, ITT's Director of Real Estate, met with Jay Anthony, the President of AP, to view the building and discuss a potential lease renewal. Id. at 10. Over the course of the next six months, the parties engaged in negotiations via emails and phone calls. See Documents 15-2; 15-3; 15-4; 15-5; 15-7; 15-8; 15-10; 15-11; 15-12; 15-13; 15-20; 15-21; 15-22. The negotiations were conducted between Lee and Brian Shiu, a Vice President of AP. Part of the negotiations involved reducing the rented space to half of the space of the building. Document #15-2 at 8. The negotiations included a reconfiguration of the space since ITT would occupy only one-half of the building. On August 13, 2015, Lee sent to Shiu a space plan for ITT to lease 16,173 rentable and 15,073 usable square feet for five years beginning on June 1, 2016. Document #11-20 at 2; Document #15-6. On September 9, 2015, Lee sent a letter to Shiu proposing terms for a lease amendment whereby ITT would lease 16,173 rentable and 15,073 usable square feet for another five years beginning on June 1, 2016, "subject to ITT Executive and Real Estate Committee approvals and to a mutually agreeable Lease Amendment." Document #15-11 at 1. This proposal was accepted by AP on the day it was sent, as evidenced by Anthony's signature of that date. Id. at 3. On September 18, 2015, Lee notified Shiu that ITT's executive committee had approved the proposal. Document #15-13.²

The letter agreement identified the property address as 12200 Westhaven Drive and the space requirements as 16,173 rentable and 15,073 usable square feet. Document #15-11. In addition to this description of the space requirements, the letter agreement provided for a renewal term of five years; annual rent of $13.25 per square foot in the first year, escalating by a stated amount in each year of the five-year term; improvements to be performed by the tenant with an improvement allowance of $10.00 per rentable square foot; approval by AP of the permit ready plans and specifications; a renewal option; a provision stating who would pay costs associated with the common areas; a provision for signage; a provision stating that AP would not pay any brokerage fees or commissions; and a confidentiality provision. The letter agreement did not contain an explicit provision regarding outdoor space. See id. The letter agreement stated that any terms not modified by the letter agreement "shall remain as set forth in the Lease." Id. at 2 ¶ 10. The letter agreement also stated that "Landlord and Tenant shall execute a mutually acceptable amendment to the Lease." Id. at 2 ¶ 11.

On September 18, 2015, Lee informed ITT's real estate broker, Vaughn McQuary, that ITT's deal with AP was completed. Ex. TT McQuary Dep. 29:5-16.³ ITT had been in discussions for the University of Phoenix space at Kirkpatrick Plaza. Lee Dep. 57:4-13. McQuary informed two persons that ITT had renewed with their current landlord. Ex. UU.

On September 28, 2015, Lee submitted ITT's draft of the formal lease amendment to Shiu. Ex. VV. On October 9 Shiu returned a redlined and edited version of the Proposal. Ex. WW. On October 23 Lee responded with edits. Ex. XX. In October of 2015, the parties began discussions regarding damage to the exterior of the building. Lee Dep. 90:1-91:24; 111:10-115:4. The parties never came to an agreement on the issue. Id. On November 6, 2015, Lee provided another draft of the lease amendment. Document #15-14.

On November 17, Anthony was contacted by Maury Mitchell, LISA Academy's commercial real estate agent, regarding the building and Anthony instructed Shiu to follow up with Mitchell. Ex. YY. Shiu reported that Mitchell had a charter school interested in the entire building. Id. Shiu told Mitchell that nothing had been executed yet with ITT and Anthony told Shiu to "push this". Id. A meeting was set up by the end of the day for LISA officials to tour the ITT building. Id. On November 18, AP's real estate broker sent an email to the principal of LISA Academy asking whether it would be interested in leasing the space at 12200 Westhaven Drive because "ITT has been occupying the building [and] is downsizing." Document #15-23 at 1. On November 20, LISA Academy officials toured the building. Document #15-24. ITT assumed the tour was to show the other half of the building and find a complementary tenant. Pilgreen Dep. 55:7-56:3. Following the tour, Shiu emailed Mitchell and stated "that if LISA is interested in moving forward it is imperative that it be done quietly and as quickly as possible." Document #15-24 at 2.

On November 20, Resa Gilmore, a Vice President at AP, sent Anthony an email stating: "ITT's deadline to give us notice if they want to exercise their option to renew is 12/2/15. That is only 11 days away."⁴ Ex. AAA. Anthony responded "Good." Id. On November 23 Lee sent an email to Shiu asking whether there were any updates. Document #15-15 at 4. Shiu responded and said that "travel and extremely complicated closings" had prevented AP from having time to dedicate to that property. Id. On November 30 Lee sent another email to Shiu asking whether there was anything he could do to speed along AP's review. Id. at 3.

By December 1, AP had presented a letter of intent to LISA Academy for consideration. Document #15-25. The parties negotiated the terms and moved quickly due to the situation with ITT. Document #15-26.

On December 4 and 7, Lee sent emails asking when he...