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Tri-City Associates, L.P. v. Belmont, Inc.

Supreme Court of South Dakota

June 1, 2016

TRI-CITY ASSOCIATES, L.P., Plaintiff and Appellant,
v.
BELMONT, INC., a South Dakota Corporation and JOSEPH Z. ERBA, Defendants and Appellees.

          CONSIDERED ON BRIEFS ON NOVEMBER 30, 2015

          REASSIGNED FEBRUARY 17, 2016

         APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA, THE HONORABLE ROBERT A. MANDEL Judge.

          MARK F. MARSHALL of Bangs, McCullen, Butler, Foye & Simmons, LLP Rapid City, South Dakota Attorneys for plaintiff and appellant.

          STAN H. ANKER JORDAN D. BORDEWYK of Anker Law Group, PC Rapid City, South Dakota Attorneys for defendants and appellees.

          WILBUR, JUSTICE.

         [¶1.] In this second appeal, Tri-City Associates, L.P. argues that the circuit court erred when it entered a judgment in favor of Belmont, Inc. In Tri-City Assocs., L.P. v. Belmont, Inc. (Tri-City I), we had reversed and remanded the case for the circuit court to enter "findings of fact and conclusions of law on the effect of Belmont's failure to give notice of breach and an opportunity to cure." 2014 S.D. 23, ¶ 24, 845 N.W.2d 911, 918. We did so because the circuit court did not address whether Belmont's claims were barred for Belmont's failure to follow the notice-and-cure provision in the parties' written lease. We stated that the "court's failure to address the notice-and-cure issue is problematic because some courts have concluded that the failure to abide by a notice-and-cure provision precludes judicial relief." Id. ¶ 22. On remand, the circuit court entered supplemental findings of fact and conclusions of law. It interpreted the notice-and-cure provision to allow for substantial compliance and found that Belmont substantially complied. It also found that Tri-City had actual notice of its material breaches and an opportunity to cure. Alternatively, the court concluded that, by bringing suit against Belmont, Tri-City repudiated any intention to perform its obligation under the lease and made futile the requirement that Belmont strictly comply with the notice-and-cure provision. It entered a judgment in favor of Belmont. Tri-City appeals. We affirm.

         Background

         [¶2.] Tri-City owned and operated the Northgate Shopping Center in Rapid City, South Dakota. It entered into a written lease agreement with Belmont in April 2006 for unfinished commercial space. The unfinished commercial space required substantial initial construction work before the lease was to begin on August 1, 2006. A "work letter" attached to the lease allocated the initial construction work between Tri-City and Belmont. The lease also contained a provision that required Belmont to give written notice to Tri-City of any alleged breach and give Tri-City the opportunity to cure any breach within 30 days.[1] Under the terms of the lease, Belmont could not avail itself of the remedies available under the terms of the lease at law or in equity until Tri-City had been afforded the opportunity to cure.

         [¶3.] The parties experienced considerable difficulties in completing the terms of the lease. Tri-City proposed to move the start date of the lease to January 15, 2007. Belmont did not respond to the requested modification. Ultimately, Tri-City did not deliver the premises to Belmont on August 1, 2006, in the condition required under the lease and did not complete its allocated initial construction work.

         [¶4.] After Belmont did not pay rent for the first few months of the lease, Tri-City served Belmont with a notice of default under the lease. A month later, Tri-City served Belmont with a notice to quit and vacate and, in April 2007, sued to evict Belmont. Belmont answered and asserted that Tri-City materially breached the lease, which Belmont asserted relieved it of its duty to pay rent. Then, in October 2007, Belmont counterclaimed for damages for Tri-City's failure to perform under the terms of the lease. Tri-City responded to Belmont's counterclaim that Belmont agreed to accept the premises "as is." Tri-City also argued that Belmont failed to provide Tri-City with written notice of Tri-City's alleged breach and did not give Tri-City an opportunity to cure as required by the notice-and-cure provision in the lease.

         [¶5.] After a court trial on April 23-24, 2013, the court issued findings of fact and conclusions of law. It found that Tri-City breached the lease by failing to complete the required initial construction and deliver the premises in broom clean condition. To the court, Tri-City's breach constituted a material breach because Tri-City's "failures and delays defeated the very object of the Lease[.]" The court concluded that Tri-City's material breaches excused Belmont's duty to pay rent and excused Belmont's "default of the terms and conditions of the Lease[.]" The court held that "because [Belmont's] actions are excused, " Tri-City "is not entitled to damages." However, the court concluded that Belmont "suffered substantial losses because of [Tri-City's] material breach" and awarded Belmont a judgment against Tri-City in the sum of $89, 220.67. The court also awarded Belmont reasonable attorney's fees and costs because the terms of the parties' lease allowed for such an award to the prevailing party. The court did not enter any findings of fact or conclusions of law regarding the effect of lease provision requiring Belmont to give Tri-City written notice of default. Tri-City appealed to this Court.

         [¶6.] On appeal, Tri-City did not dispute that it materially breached the parties' lease. It asserted that "Belmont's defense and counterclaim were barred as a matter of law by: (1) the lease provision in which Belmont accepted the premises as is, and (2) Belmont's failure to give Tri-City notice of its alleged breach and an opportunity to cure." Tri-City I, 2014 S.D. 23, ¶ 8, 845 N.W.2d at 914. From our review of the parties' agreement, we concluded that "[a] harmonious reading of all provisions reflects that the as is clause did not abrogate Tri-City's post-execution obligations to perform initial construction and to deliver the premises in broom clean condition." Id. ¶ 14. We, however, remanded the case because the circuit court did not address the effect of the notice-and-cure provision on Belmont's counterclaim. We directed the court on remand to enter "findings of fact and conclusions of law on the effect of Belmont's failure to give notice of breach and an opportunity to cure." Id. ¶ 24.

         [¶7.] On remand, the circuit court did not take additional evidence. It issued supplemental findings of fact and conclusions of law. The court ruled that "[t]he intent of the notice and cure provision of the Lease was to provide a breaching party with notice that it is in breach of the lease and provide that party with an opportunity to cure the breach." The circuit court held that Belmont "substantially complied with the 'notice-and-cure' provisions of the Lease, " that Tri-City "had actual notice that it was in breach of the Lease, " and that Belmont "provided [Tri-City] with an opportunity to cure the breach." Alternatively, the court concluded that "[b]y filing suit against [Belmont] for possession of the premises, [Tri-City] repudiated the Lease and any intention to perform under the Lease." The court held that Tri-City's "repudiation of the lease absolved [Belmont] of any obligation to provide [Tri-City] notice of breach and opportunity to cure breach as [Tri-City] had made its intention not to perform under the Lease unequivocal." The court again entered a judgment in favor of Belmont for damages, plus interest, attorney's fees, and costs.

         [¶8.] Tri-City appeals and raises the following issue for our review: Did the circuit court err as a matter of law by ...


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