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Caldwell Land and Cattle, LLC v. Johnson Thermal Systems, Inc.

Supreme Court of Idaho

November 15, 2019

CALDWELL LAND AND CATTLE, LLC, an Idaho limited liability company, aka CALDWELL LAND & CATTLE COMPANY, LLC, Plaintiff-Respondent,
v.
JOHNSON THERMAL SYSTEMS, INC., an Idaho corporation, Defendant-Appellant.

          Appeal from the District Court of the Third Judicial District, State of Idaho, Canyon County. Christopher S. Nye, District Judge.

         District court's amended final judgment vacated and remanded.

          Hawley, Troxell, Ennis & Hawley, LLP, Boise, for appellant. Lynnette Michele Davis argued.

          Strong & Hanni, Salt Lake City, Utah, for respondent. William Ingram argued.

          BURDICK, CHIEF JUSTICE

         This appeal stems from an unlawful-detainer and breach-of-contract action filed by Caldwell Land and Cattle, LLC, ("CLC") after purchasing a building where the holdover tenant, Johnson Thermal Systems ("JTS"), asserted a right to remain on the property. The dispute centers on the interpretation of a lease between JTS and the original property owner which granted JTS an option to extend the lease. JTS contends it properly exercised the option; CLC contends JTS did not. The district court held that JTS failed to exercise the option and thus became a holdover tenant. The court further held that when JTS did not vacate within the proper timeframe, JTS unlawfully detained the premises and was liable for the ensuing damages. JTS timely appeals.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In February 2012, JTS, a producer of industrial refrigeration equipment, entered into a lease agreement (the "Lease") with the Gilbert Family Trust ("Gilbert") for a commercial property located in Caldwell, Idaho. The Lease granted JTS an option to renew for two one-year terms but required JTS to give Gilbert at least 60 days' prior written notice of its intent to do so before the Lease's expiration. In addition, all amendments, modifications, or changes to the Lease were to be made in writing and signed by the parties. In March 2013, JTS and Gilbert[1]signed a written amendment to the Lease which expressly stated that JTS was exercising its option to extend the Lease for one of its additional one-year terms. The amendment extended the Lease until April 15, 2014.

         During 2014, JTS began constructing a new facility at a different location. In the meantime, JTS and Gilbert's agent discussed plans for renewing the Lease beyond its expiration on April 15, 2014. Gilbert was aware that JTS planned to move its operation once the new facility was completed, and JTS knew Gilbert was hoping to sell the property. During negotiations, Gilbert presented possibilities of month-to-month, 6-month, and one-year terms at different rates. On April 10, 2014 JTS told Gilbert via email that it "would like to do a 6 month lease with the option to go month to month for an additional 3-6 months."

         JTS and Gilbert drafted and signed an amendment extending the Lease until October 15, 2014 (the "Extension Amendment"). The Extension Amendment set rent for the 6-month term at $6, 000 per month. If JTS wished to extend the Lease at the conclusion of the 6-month term, the Extension Amendment provided two possible arrangements: JTS could extend the Lease either for an additional 6-month term at $6, 000 per month, or on a month-to-month basis at $6, 250 per month. All other terms and conditions remained "in full force and effect" unless "specifically amended."

         During this 6-month extension term, JTS and Gilbert's agent discussed extending the lease beyond October 15th. However, JTS never definitively answered whether it would elect to extend the Lease or which arrangement it would select if it did choose to extend. JTS consistently gave Gilbert possible vacation dates that were considerable time before April 15, 2015 (the would-be termination date if the second 6-month extension were selected). For example, JTS informed Gilbert in August 2014 that it was "hoping on the December move in on the new building, but it could be January." A month later, Gilbert's agent asked JTS to keep him informed of their planned vacancy of the building. The agent advised JTS that he had told Gilbert that JTS was "shooting for December 15th." He also informed JTS that Gilbert would be signing a listing agreement and installing a "For Sale" sign on the property in the coming week.

         October 15, 2014 passed without a written or oral agreement extending the lease. JTS continued to occupy the building and paid $6, 000 in rent for November and December 2014. In November 2014, Gilbert entered into an agreement to sell the property to CLC. CLC is a single-purpose LLC created to own and manage the property. Its sole purpose was to lease the property to Caldwell Peterbilt. In the first week of December, Gilbert's agent informed JTS that Gilbert was selling the property and that she and CLC aimed to close by December 31, 2014. JTS was also informed that CLC would issue a 30-day eviction notice. JTS then asserted that it had exercised the 6-month extension. Less than a week later, Gilbert sent JTS a written "Notice of Termination" which required JTS to surrender possession on January 31, 2015, at which point the lease would terminate. The termination notice also required JTS to leave the property in the same condition it was in upon entering the Lease including the removal all trade fixtures.

         Gilbert and CLC closed on the property in late December 2014. After this, CLC and JTS had discussions centering on when JTS could be out by the earliest. The parties were unable to reach an agreement. On January 22, 2015, CLC filed a complaint for unlawful detainer based upon JTS's representation that it would not surrender the property on January 31. The complaint sought possession of the property. A week later, on January 29, JTS reiterated its position that it had exercised the 6-month extension and stated that it did not plan to vacate the premises until April 15, 2015.

         However, JTS vacated the property around February 12, 2015, after the City of Caldwell approved an early move into its new facilities. JTS made no repairs to the property and left in place a leased 480V electrical transformer which JTS had installed a year earlier. On February 23, 2015, JTS contacted Idaho Power to request that they remove the transformer. After Idaho Power removed the transformer, Peterbilt called Idaho Power to reinstall the transformer on March 2. Peterbilt would take possession of the property in May 2015.

         CLC amended its complaint on March 24, 2015. The complaint no longer sought possession of the property, but sought damages associated with JTS's alleged unlawful detainer. In addition, the amended complaint alleged breach of contract; breach of the implied covenant of good faith and fair dealing; and intentional and malicious injury to property. JTS counterclaimed for breach of contract; constructive eviction; and for a refund of the security deposit and the unearned portion of the February 2015 rent.

         More than two years later, in August 2017, the district court held a three-day bench trial. In the written decision which followed, the district court ruled that the plain language of the Lease required all amendments, modifications, or changes to be in writing and signed by the parties. Determining that the Extension Amendment did not alter or eliminate the writing requirement, the court ruled that the Extension Amendment's 6-month extension needed to be put in writing. Since the parties failed to create a written extension, the district court ruled that JTS and Gilbert created a "month-to-month" or "at-will" tenancy when JTS paid, and Gilbert accepted, $6, 000 in rent after the extension deadline passed. For the unlawful-detainer claim, the court found JTS liable for failing to vacate by the Notice of Termination's January 31, 2015 deadline. For the breach-of-contract claim, the court found JTS liable for failing to vacate after its term expired, removing the transformer without CLC's permission, and failing to make repairs. The district court also found that JTS breached the implied covenant of good faith and fair dealing by failing to give timely notice to CLC of when it would vacate the property and by failing to pay the higher rent for the month-to-month option. Finding that JTS agreed to indemnify CLC in the Lease, the court ruled that CLC was entitled to $86, 389.26 in damages for unpaid rent, damages and costs caused by removal of the transformer, costs to repair the property, and damages related to Peterbilt's inability to move into the building on February 1st (such as rent due on extending Peterbilt's prior lease, costs of an idle employee, and lost profits).

         After the district court's findings of facts and conclusions of law were entered, CLC requested attorney's fees under Idaho Code section 6-324, Idaho Rule of Civil Procedure 54(e)(1), and the Lease. Meanwhile, JTS moved to reconsider, alter, or vacate the judgment. The court summarily denied JTS's motion. The district court awarded CLC $150, 000 in attorney's fees under the Lease and Idaho Code section 6-324 in addition to around $3, 400 in costs as a matter of right. The district court then entered a final judgment awarding damages, costs, and attorney's fees. JTS timely appeals.

         II. ISSUES ON APPEAL

         1. Did the district court err in concluding that the JTS did not intend to exercise the 6-month option to extend the Lease?

         2. Did the district court err by hearing CLC's contract claims in a proceeding that began as an unlawful detainer claim for damages?

         3. Did the district court err in awarding damages to CLC based on unlawful detainer or breach of contract?

         4. Did the district court properly award attorney's fees to CLC below?

         5. Is either party is entitled to attorney's fees on appeal?

         III. STANDARD OF REVIEW

         "Review of a trial court's conclusions following a bench trial is limited to ascertaining whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law." Borah v. McCandless, 147 Idaho 73, 77, 205 P.3d 1209, 1213 (2009) (citing Benninger v. Derifield, 142 Idaho 486, 488-89, 129 P.3d 1235, 1237-38 (2006)). "This Court will not set aside a trial court's findings of fact unless the findings are clearly erroneous." Id. "Clear error will not be deemed to exist if the findings are supported by substantial and competent, though conflicting, evidence." Mortensen v. Berian, 163 Idaho 47, 50, 408 P.3d 45, 48 (2017) (quoting Pandrea v. Barrett, 160 Idaho 165, 171, 369 P.3d 943, 949 (2016)). Substantial and competent evidence exists "[i]f there is evidence in the record that a reasonable trier of fact could accept and rely upon in making the factual finding challenged on appeal . . . ." Id.

         However, this Court "exercises free review over matters of law and is not 'bound by the legal conclusions of the trial court, but may draw its own conclusions from the facts presented.'" Morgan v. New Sweden Irr. Dist., 160 Idaho 47, 51, 368 P.3d 990, 994 (2016) (quoting Credit Suisse AG v. Teufel Nursery, Inc., 156 Idaho 189, 194, 321 P.3d 739, 744 (2014)). But this Court "will not substitute [its] view of the facts for the view of the district court," so "the trial court's findings of fact will be liberally construed in favor of the judgment entered." Mortensen, 163 Idaho at 50, 408 P.3d at 48 (citations omitted).

         "The awarding of attorney fees and costs is within the discretion of the trial court and subject to review for an abuse of discretion." In re Estate of Birch, 164 Idaho 631, 633, 434 P.3d 806, 808 (2019) (quoting Smith v. Mitton, 140 Idaho 893, 897, 104 P.3d 367, 371 (2004)). Thus, this Court conducts a four-part inquiry to determine whether the trial court: "(1) correctly perceived the issue as one of discretion; (2) acted within the outer boundaries of its discretion; (3) acted consistently with the legal standards applicable to the specific choices available to it; and (4) reached its decision by the exercise of reason." Lunneborg v. My Fun Life, 163 Idaho 856, 863, 421 P.3d 187, 194 (2018) (citing Hull v. Giesler, 163 Idaho 247, 250, 409 P.3d 827, 830 (2018)).

         IV. ANALYSIS

         In light of the many issues and arguments raised in this appeal, we first address (A) whether the district court erred in determining that JTS failed to exercise the 6-month extension option. Next, we discuss (B) whether the district court erred by considering contract claims in a proceedings that began as an unlawful detainer action for possession. Finding no error, we then assess whether its award of damages under either unlawful detainer or breach of contract must be revised. Concluding that the damages must be revised, we provide (C) a calculation of the damages awardable in this case. Next, we take up (D) whether the district court abused its discretion in awarding attorney's fees below. Lastly, we address (E) whether either party is entitled to attorney's fees on appeal.

         A. JTS became a month-to-month tenant after holding over because it did not intend to exercise the 6-month option to extend.

         The district court determined that JTS failed to exercise the Extension Amendment's 6-month extension option because the Lease required all amendments, modifications, or changes to be in writing and signed by the parties. Importantly, the district court also found that JTS was "clear" about its intent to move out as soon as the new facility was completed and that JTS did not intend to exercise the 6-month extension. In fact, the district court found that "[u]ntil the present dispute arose, neither [JTS] nor Gilbert intended to renew the lease for a [6]-month term after October 15, 2014."

         On appeal, JTS claims that the Extension Amendment itself was a modification which changed how it and Gilbert could extend the Lease going forward. Thus, in JTS's view, all that was required under the Extension Amendment to trigger the 6-month extension was to pay the rent at the 6-month rate and continue in possession. In support, JTS relies on the Court of Appeals' decision in Dante v. Golas to argue that, because the Extension Amendment lacks the "written notice" language, it does not require a writing to be effective. (citing 121 Idaho 149, 823 P.2d 183 (Ct. App. 1992). While JTS's arguments have a legal foundation, the district court's finding that JTS did not intend to exercise the lease extension is dispositive of this issue. As explained below, (1) JTS failed to exercise the 6-month extension, and, as a result, (2) JTS and Gilbert entered into an implied-at-law periodic tenancy after the extension was not exercised.

         1. JTS did not exercise the 6-month extension because it lacked the intent to exercise the option.

         "The purpose of interpreting a contract is to determine the intent of the contracting parties at the time the contract was formed." Thurston Enterprises, Inc. v. Safeguard Bus. Sys., Inc., 164 Idaho 709, 717, 435 P.3d 489, 497 (2019) (citation omitted). To accomplish this, "the contract is to be viewed as a whole." Id. "The interpretation of a contract begins with the language of the contract itself." Cristo Viene Pentecostal Church v. Paz, 144 Idaho 304, 308, 160 P.3d 743, 747 (2007) (quoting Independence Lead Mines Co. v. Hecla Mining Co., 143 Idaho 22, 26, 137 P.3d 409, 413 (2006)). "An unambiguous contract will be given its plain meaning." Bakker v. Thunder Spring-Wareham, LLC, 141 Idaho 185, 190, 108 P.3d 332, 337 (2005). "A contract is ambiguous if it is reasonably subject to conflicting interpretations." Id. "Determining whether a contract is ambiguous is a question of law over which this Court exercises free review." Cristo Viene, 144 Idaho at 308, 160 P.3d at 747. However, "interpreting an ambiguous term is an issue of fact." Thurston Enterprises, Inc., 164 Idaho at 717, 435 P.3d at 497 (quoting Phillips v. Gomez, 162 Idaho 803, 807, 405 P.3d 588, 592 (2017)).

         For contractual options, precision in language is paramount. This fact is evidenced in Dante v. Golas. 121 Idaho 149, 823 P.2d 183 (Ct. App. 1992). There, the Court of Appeals examined a lease agreement where the tenants had the option to assume the mortgage on the property. Id. at 150, 823 P.2d at 184. At issue was the following lease provision:

NOTICE-If lessees wish to assume mortgage prior to 12/31/88, they agree to give owners at least 30 days notice prior to the date they wish to assume. This will enable owners to obtain and complete the proper papers.
1. At the end of this lease, the lessees have the option of assuming the mortgage at the prevailing rate and terms.

Id. The tenant in Dante provided notice in mid-December that they wished to purchase the property, but the landlord refused to sell. Id. The district court concluded the tenant had complied with the unambiguous terms of the lease by sending a letter of intent to assume the mortgage upon expiration of the lease in mid-December. Id. On appeal, the landlord argued that the tenant failed to exercise the option in a timely fashion because it was required to actually assume the mortgage prior to the expiration of the lease term. Id. The Court of Appeals disagreed, stating:

The above-quoted language of the lease-option does not provide that an option to be exercised "at the end of [the] lease" was subject to the thirty-day notice requirement; this requirement was expressly limited to an assumption of the mortgage "prior to" December 31, 1988. As to the argument that the assumption had to have been actually completed by December 31, 1988, the lease-option contained no stated condition precedent that performance, rather than notice of intent to perform, had to take place during the option period.

Id.

         Here, the relevant provisions of the Lease gave JTS the option to renew the Lease so long as it gave prior written notice:

TERM OF LEASE: Lessee shall be entitled to exclusive possession of the premises for a period of thirteen (13) months commencing on March 15, 2012 and terminating on April 15, 2013. The base rent for the first month of the initial term (3/15/1012-4/15/2012) shall be waived. At least (60) sixty days prior to the expiration of the lease term, the Lessee shall give the Lessor written notice of his intention to renew the lease . . .
OPTION TO RENEW: Upon Lessor's receipt of written notice by the Lessee at least sixty (60) days prior to the expiration of this Lease Agreement, Lessor grants to Lessee an option to renew this Lease for an additional two (2) terms of one (1) year each commencing with the expiration for this Lease Agreement. Rent shall increase on the basis of three percent (3%) with the commencement of each new term. All other terms of the renewed lease shall be negotiable . . .
MODIFICATION: This agreement may not be amended, modified or changed except by a writing signed by all parties hereto . . .

         The Extension Amendment, on the other hand, extended the lease term and granted JTS an option to further extend the lease term:

1. Extension of Term. The Lease Term of the Lease is hereby extended Six (6) months, effective as of April 16, 2014. The Lease Term, as extended by this Amendment, shall expire upon October 15, 2014 . . .
3. At the conclusion of this lease extension the Tenant shall have the option to extend the lease agreement for an additional period of either six (6) months or on a month to month basis at the following rates:
a. Six Month Term: Base Rent = $6, 000/mo
b. Month to Month Term: Base Rent = $6, 250.00/mo . . . .
4. All other terms and conditions of the Lease Agreement, not specifically amended hereby, remain in full force and effect.

         Viewing the contract in its entirety, the district court's reliance on the modification provision is misplaced. The modification provision merely provides that all changes must be in writing as opposed to an oral agreement. The Extension Amendment is a valid exercise of the modification provision. As a freestanding amendment, its terms govern how the option to extend must be exercised. Previously, the parties signed amendment to the Lease to renew the Lease, but these amendments also changed the terms of the Lease. Here, no new writing would have been required if JTS exercised the options to extend under the Extension Amendment because all possible terms, including price and duration, appeared in the Extension Agreement itself.

         We must next determine whether the Extension Amendment contains a notice requirement. While the Lease required JTS to give 60 days' written notice of intent to exercise the option to renew, the Extension Amendment lacked such a requirement. The option to extend is both semantically and substantively distinct from the option to renew. A renewal, by its nature, is a new lease, with new terms, and thus, must be signed anew. An extension, on the other hand, prolongs the current lease term rather than creating a new one. Thus, to comply with the extension's terms, JTS was contractually required to pay rent and continue in possession. While JTS can be fairly said to have done that, this does not end the inquiry.

         Where, as here, a lease's option to extend lacks a notice provision, the prevailing rule is that the court will presume that a tenant has validly exercised the option when the tenant holds over and pays the agreed-upon rent. See Ellis v. Pauline S. Sprouse Residuary Tr., 280 S.W.3d 806, 811 (Tenn. 2009) (listing cases). However, excepted from this general rule are circumstances where the parties' intent or conduct rebuts that presumption. See 52 C.J.S. Landlord & Tenant § 112 ("[I]n determining whether a holding over has effected an extension or renewal under an option therefor, the holding over should be considered in connection with the intention of the parties and the circumstances attending the transaction.").

         This case presents the exception to the general rule. Any presumption that JTS exercised the 6-month option to extend is foreclosed by the district court's factual finding that JTS did not intend to exercise the option. After the three-day trial, the district court found that neither JTS nor Gilbert intended to exercise the 6-month option. This finding is supported by substantial, competent evidence. The district court rested this finding upon the written correspondence between JTS and Gilbert detailing the touch-and-go nature of JTS's new building, noting that JTS "made clear" it intended to move out as soon as it could move into its new facility. The district court also noted that all of JTS's proposed exit dates would have occurred prior to the end of the second 6-month option to extend. Given these findings, the district court did not err in determining that JTS failed to exercise the 6-month extension.

         2. JTS and Gilbert entered into an implied-at-law periodic tenancy because JTS paid, and Gilbert accepted, monthly rent in the absence of a formal agreement.

         The next inquiry concerns the nature of the leasehold created after JTS failed to exercise the 6-month option. The district court ruled that JTS "carried on as a month-to-month or at-will tenant." While this ruling is not altogether incorrect, the phrasing is imprecise. Considering the entirety of the district court's decision, it appears that the district court meant to construe the leasehold as a month-to-month periodic tenancy. For the reasons below, we agree.

         A holdover tenancy is "a tenancy arising when a person who has been in lawful possession of a property wrongfully remains as a holdover after his or her interest has expired." Black's Law Dictionary 1694 (10th ed. 2014). While "holding over" describes the tenant's action, the tenancy created when a tenant holds over depends on how the landlord treats the tenant's holdover. The landlord can either (1) treat the holdover tenant as a trespasser or (2) hold the tenant to a new tenancy. See Lewiston Pre-Mix Concrete, Inc. v. Rohde, 110 Idaho 640, 644- 45, 718 P.2d 551, 555-56 (Ct. App. 1985). Upon treating the tenant as a trespasser, the landlord may bring an action for unlawful detainer. Id. at 556, 718 P.2d at 556. But if lessor "seeks, implicitly or explicitly, to hold lessee to new tenancy," then "a new lease arises by operation of law." Id. Such operation-of-law tenancies may take different forms-such as at will or periodic. See id. A tenancy at will has no fixed terms while a periodic tenancy automatically continues for successive periods. Id.

         Here, a month-to-month periodic tenancy arose when JTS remained on the property and Gilbert accepted rent on a monthly basis. Just as the parties' conduct and intent informs whether JTS exercised the option to extend, it also informs the tenancy that is created. See 52 C.J.S. Landlord & Tenant § 248. Gilbert's acceptance of rent on a monthly basis evidences the intent to hold JTS to a new tenancy and supplies the periodic intervals that define the tenancy. See id. ("In the absence of an express agreement thereon, a tenancy from month to month arises from a tenant's holding over where the rent under the prior lease was on a monthly basis, even though the expired term was for a period of years, or where the rent during the holdover tenancy is ...


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