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Arrowhead Ridge I, LLC v. Cold Stone Creamery

July 6, 2011

ARROWHEAD RIDGE I, LLC,
PLAINTIFF AND APPELLANT,
v.
COLD STONE CREAMERY, INC., FRANCHISE LOCATION: 5416 E. ARROWHEAD PKWY SIOUX FALLS, SD 57110,
DEFENDANT AND APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA HONORABLE KATHLEEN K. CALDWELL Judge

The opinion of the court was delivered by: Severson, Justice

ARGUED ON MAY 24, 2011

[¶1.] Arrowhead Ridge I, L.L.C. initiated this forcible entry and detainer action when its tenant, Cold Stone Creamery, Inc., defaulted on its lease. The trial court granted Arrowhead partial summary judgment, concluding that it was entitled to seventeen months of unpaid rent and late fees. The issues of mitigation of damages, interest, and attorneys' fees proceeded to trial. After a court trial, the trial court concluded that Arrowhead failed to mitigate its damages due solely to an exclusivity provision in a lease with another tenant. The trial court also concluded that Arrowhead could not recover its attorneys' fees under either the terms of the lease or South Dakota law. The trial court denied the parties' motions for a new trial. We reverse and remand.

Background

[¶2.] F&K Assam Family, L.L.C. owned a parcel of land in a growing commercial area in eastern Sioux Falls. Between 2002 and 2004, F&K sought to develop the property by building a retail center. Because F&K's lender required signed leases for approximately half of the retail center before funding the project, F&K solicited and obtained executed leases with three national or regional companies before construction. [¶3.] Cold Stone was one of three tenants F&K acquired before construction. In February 2004, Cold Stone contacted F&K to negotiate a lease and delivered a draft letter of intent for lease of space in the retail center. The letter proposed "Cold Stone Creamery Leasing, Inc., a company with no assets and no liabilities," as the tenant for the property. The letter proposed no guarantors. F&K notified Cold Stone that it would only lease to a substantial tenant who had the financial ability to pay rent over the full term of the lease. Cold Stone thus informed F&K that it would be the tenant. Negotiations continued through May 2004 with both parties making changes to a proposed lease. Subsequent drafts of the proposed lease identified Cold Stone as the tenant.

[¶4.] In June 2004, Cold Stone notified F&K that company policy required a twelve-month limitation of liability in the event of default. F&K was willing to limit Cold Stone's liability to eighteen months if Cold Stone's prospective franchisees, Ed and Cindy Reesman, signed the lease and provided current financial statements demonstrating their financial ability to fully perform the lease. F&K forwarded a draft incorporating this agreement to Cold Stone but left Cold Stone as the tenant and primary obligor on the lease until it received the Reesmans' financial statements. In August 2004, Cold Stone informed F&K that it need not worry about the Reesmans' financial statements because it would be liable for the entire lease term. Cold Stone signed the lease as both tenant and guarantor. F&K assigned its interest in the lease to Arrowhead in October 2005.

[¶5.] Cold Stone sublet the leased premises to the Reesmans, who operated a Cold Stone franchise at the location until early 2007. When Cold Stone defaulted on the lease in June 2007, Arrowhead commenced this forcible entry and detainer action. Neither Cold Stone nor the Reesmans were in actual possession of the leased premises when Arrowhead commenced this action.

[¶6.] Arrowhead began efforts to lease the premises to another tenant. It posted signs indicating that the space was available, circulated a data sheet to commercial real estate brokers in Sioux Falls, and made calls to advise that the premises was available. A variety of possible tenants contacted Arrowhead about the premises, including a cigar lounge, a beauty parlor, a tanning salon, two sandwich restaurants, a pizza buffet restaurant, two Chinese restaurants, a cell phone distributor, and a bank. Although the pizza buffet restaurant was interested, Arrowhead was unable to lease the premises due to an exclusivity provision in its lease with HuHot, an Asian-style buffet restaurant located in the retail center.*fn1 By the time of trial, the premises had been vacant for nearly two years.

[¶7.] In January 2009, the trial court granted Arrowhead partial summary judgment, concluding that it was entitled to seventeen months of unpaid rent and late fees. The issues of mitigation of damages, interest, and attorneys' fees proceeded to trial in April 2009. After hearing evidence about the lease negotiations and Arrowhead's efforts to lease the premises to another tenant, the trial court concluded that Arrowhead failed to mitigate its damages due solely to the exclusivity provision in its lease with HuHot. The trial court also concluded that Arrowhead could not recover its attorneys' fees under either the terms of the lease or South Dakota law. The trial court denied the parties' motions for a new trial.

Standard of Review

[¶8.] Arrowhead and Cold Stone appeal from the trial court's denial of their motions for a new trial. SDCL 15-6-59(a) provides that a new trial may be granted for:

(6) Insufficiency of the evidence to justify the verdict or other decision or that is against law;

(7) Error of law occurring at the trial; provided, that in the case of claim of error, admission, rejection of evidence, or instructions to the jury or failure of the court to make a finding or conclusion upon a material issue which had not been proposed or requested, it must be based upon an objection, offer of proof, or a motion to strike.

"The decision to grant a new trial is left [to] the sound judicial discretion of the trial court" and is therefore reviewed under the abuse of discretion standard. Sherburn v. Patterson Farms, Inc. , 1999 S.D. 47, ¶ 8, 593 N.W.2d 414, 416 (citing Harter v. Plains Ins. Co., Inc. , 1998 S.D. 59, ¶ 9, 579 N.W.2d 625, 629).

Analysis and ...


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