CHARLES R. SIMPSON, III, District Judge.
This matter is before the court on appeal from a decision of the United States Bankruptcy Court finding in favor of the defendant, Louisville Galleria, LLC ("LG") on a counterclaim for breach of contract against the debtor, Thirteenth Floor Entertainment Center, LLC, formerly known as Premier Health and Fitness Clubs, LLC ("Premier").
LG operates Fourth Street Live in downtown Louisville, a business development consisting of a group of buildings, including the historic Kaufman-Strauss Building.
For approximately one year. the parties negotiated the terms of a lease for space on the second floor in the Kaufman-Strauss Building. The parties were represented by experienced counsel, and at least 5 formal drafts of the lease document were exchanged prior to the execution of the so called "Shopping Center Lease." (hereinafter, "the Lease"). It was ascertained that there were some 400+ changes made and accepted between the first and final drafts of the document, thus evidencing that much deliberation went into the crafting of the final product. Exhibits were also exchanged and were incorporated by reference into the Lease. While Premier was represented by counsel, it is undisputed that Premier did not have an architect or engineer review any draft of the Lease. Premier urges that in early November, both Premier and LG had concerns about the suitability of the then-existing chilled water air conditioning system for a fitness center in the second-floor location in the Kaufman-Strauss Building. In any event, the plaintiff signed the Lease on November 19, 2003 and LG signed on November 24, 2003, then attaching the referenced exhibits.
The Bankruptcy Court found that the Lease was a fully integrated document, noting the sophistication of the parties, the assistance of able counsel in negotiating its terms, and the inclusion of an integration clause stating:
Lease, § 3401.
As noted by the Bankruptcy Court, an integration clause in a contract is "a sufficient basis to consider the agreement the complete and accurate integration of the contract." KFC Corp. v. Darsam Corp., 543 F.Supp. 222, 225 (W.D.Ky. 1982); Papa John's Int'l, Inc. v. Dynamic Pizza, Inc., 317 F.Supp.2d 740, 745 (W.D.Ky. 2004). We find no error in the Bankruptcy Court's conclusion that
Mem.Op., p. 12. Thus we find Premier's eighth issue on appeal — that the Bankruptcy Court erred in refusing to hear evidence as to the non-integration of the contract — to be without merit.
Premier's other seven claims of error all revolve around its contention that LG's work was not substantially complete when it delivered the Premises to Premier on January 30, 2004.
The Lease provided that upon delivery of possession of the Premises with notice of the substantial completion of LG's work, as listed in Exhibit C to the lease, Premier would become responsible for the utilities, was required to maintain certain insurance coverage, and the 180-day "Fixturing Period" would begin. Lease, § 316. The "Fixturing Period" was the time in which Premier was to prepare the premises for opening of the business. Lease, § 201(m).
With regard to Possession, the Lease provided that
Exhibit C listed seventeen items of LG's Work, sixteen of which there is no dispute were substantially completed prior to delivery of the Premises. Premier contends that LG did not substantially complete item 10:
Ex. C, ¶ 10.
The crux of Premier's argument is that LG's decision to demolish the existing chilled water system and put in a rooftop HVAC system prevented LG's substantial completion of Item 10 until after Premier was required to meet various obligations under the Lease. Premier thus contends that the Notice of Possession did not become effective until the installation of the HVAC system was substantially complete, and therefore its failure to meet various performance deadlines, including, ultimately, failing to ever open the fitness center or to pay rent were not breaches of the Lease. Premier urges that to find otherwise, as the Bankruptcy court did, is to reach a nonsensical conclusion which yields an absurd result. Premier postulates that the chilled water system was not "feasible," for the operation of its fitness center, and therefore the completion of the rooftop units was essential to LG's substantial completion of its Work under the Lease.
A statement by LG's engineers is referenced by Premier in support of its argument. It states, in part:
11/19/03 Kerr-Greulich e-mail. Premier contends that knowledge of a potential "odor problem" with use of a chilled water system to cool a fitness center at that location must preclude the court's finding that LG's delivery of the space with chilled water constituted delivery with LG's Work substantially complete. In other words, Premier contends that the court should not ignore the fact that LG knew that there was more for it to do with respect to the cooling systems in order to "do the right thing." Reply, p. 2, quoting Blake Cordish, Tr. 3-42. Premier concludes that the court reaches an absurd result by concluding that Exhibit C, Item 10 was substantially completed by delivery of the Premises equipped with chilled water for an air conditioning system which would ultimately prove problematic with a future first floor tenant of the Kaufman-Strauss Building.
We conclude, however, that a finding of substantial completion of Exhibit C, Item 10 on the delivery date is not inconsistent with the later installation of an HVAC system which was completed in September of 2004. The clear language of Item 10 provides that LG will supply Premier with chilled water via a central plant, or, at LG's option, adequate HVAC rooftop units. It is undisputed that chilled water via a central plant was provided, despite the fact that the existing cooling system was demolished in July, 2004 and replaced with HVAC rooftop units. Premier does not deny that the chilled water system was in place on January 30, 2004. Thus Item 10 was substantially completed despite a later decision to replace the system with rooftop units. We affirm the Bankruptcy Court's conclusion that Notice of Possession was effective on the date of delivery of the Premises.
The Bankruptcy Court found further support for its conclusion in the fact that Premier never raised any question about the cooling system until after the Lease was terminated for its failure to perform:
Mem.Op., pp. 6-7.
The Bankruptcy Court found that LG gave Premier proper notice in accordance with Section 2705 of the Lease of Premier's failure to meet the performance deadlines in the Lease. In particular, Section 1401 required Premier to deliver for LG's approval within ninety days of the execution of the Lease copies of "plans and specifications showing in reasonable detail any and all interior and/or exterior alterations or improvements that [Premier] proposes to make to the Premises, including interior and exterior signage," such plans required to be "in accordance with all requirements of all applicable governmental authorities and Laws for submissions to obtain a building permit." Id. Premier's plans were due February 24, 2004. It submitted only a tentative "layout" plan. It is undisputed that this "layout" plan could not have been utilized to obtain a building permit. Mem.Op. p.7. LG delivered notices of default to Premier regarding the failure to deliver plans on March 3, 2004 and April 15, 2004. LG did not seek to terminate the Lease at that time, but rather accepted Premier's completed plans on July 8, 2004. Premier's plans were approved on July 13, 2004. Mem.Op., p. 8. While Premier now urges that it was prevented from completing its plans by LG's decision to change the air conditioning system, it did not provide notice seeking extra time to comply due to LG's actions.
Under Section 402, Premier was required to proceed with due diligence to install fixtures and equipment and to perform all other work required by its plans in order to prepare for the opening and operation of the fitness center. Sections 201(m) and 307 required that the work be performed within a 180-day "Fixturing Period" which commenced on the date of the Notice of Possession. As the Notice of Possession was sent on January 30, 2004, the Fixturing Period ended on July 28, 2004, fifteen days after the approval of its plans. Needless to say, Premier did not complete the renovations. Mem.Op., p. 8.
Sections 321 and 701 required Premier to begin paying rent on the Rent Commencement Date, defined as the next calendar day after the last day of the Fixturing Period, or the date on which Premier opened its fitness center for business, whichever came first. The Rent Commencement Date was July 29, 2004, as Premier never opened the fitness center. Premier never paid LG rent under the Lease. LG delivered a notice of default to premier on August 2, 2004 for failure to pay rent and failure to operate its business. It sent another such notice on August 31, 2004. On September 8, 2004, LG delivered a general notice of default which included an express statement reserving its enforcement rights under the lease. On October 6, 2004, LG sent Premier notice of termination of the Lease. Mem.Op. pp. 25-26.
Again, Premier urges that the Notice of Possession was not effective until after installation of the HVAC system, thus the Fixturing Period did not begin to run with the delivery of the Notice. As we have found that the Notice was effective, we reject this argument.
Additionally, Premier contends that
Reply, p. 6. Premier's four arguments will be addressed seriatim.
First, anyone who has stepped outside in late July in Louisville, Kentucky will find some facial appeal in the argument that it is patently unreasonable to require an un-air conditioned fitness center to open in the middle of a Louisville summer. This argument is based upon the notion that potential patrons would not choose to work out in a sweltering gym. This sweat-grounded logic is, however, wholly speculative and beside the point. The Lease agreement does not provide for Premier's ability to open and run its business profitably. Further, to the extent that Premier was, arguendo, inhibited in its ability to successfully operate a fitness center business at all
Second, any perceived unfairness in requiring Premier to pay rent during the period from the Rent Commencement Date to the completion of the installation of the HVAC system, a period spanning a number of weeks, was never raised by Premier. Premier did not seek a reduction in rent nor did it notify LG of any claimed interference by LG which Premier believed entitled it to reduction or mitigation of rent. The court sees no absurdity in the requirement that Premier pay rent for Premises which were without air conditioning for a number of weeks. The option to install an HVAC system was specifically contemplated by the Lease and, in fact, urged vigorously by Premier to be a necessary improvement to the property. We thus reject Premier's argument on this basis.
The Third and Fourth arguments can be addressed together. Premier argues that it makes no sense to find that the Fixturing Period expired or that a punchlist was required before completion of the installation of the HVAC system. However, these contentions fail in light of the clear and unambiguous language of the Lease. Both the commencement of the Fixturing Period and the requirement of the punchlist run from the date of the Notice of Possession. The court has already concluded that the Notice of Possession was effective on delivery of the Premises on January 30, 2004. We reiterate that the provision of chilled water satisfied Exhibit C, Item 10 so as to render delivery of the Premises under substantial completion of LG's Work, as defined by the Lease. The performance periods for the punchlist and for fixturing thus began to run on January 30. This court agrees with the Bankruptcy Court's conclusion that if the decision to replace the chilled water system, made in April, 2004, "truly was preventing [Premier]'s performance, Premier should have obtained a formal modification of the Lease, or at least sought a formal adjudication of breach by [LG], well before [LG] terminated the Lease for [Premier]'s failure to perform." Amend.Ord., p. 2. As the lease provisions were operable and no modification of those terms was sought, we find Premier's post hoc argument that it is unreasonable to find Premier to have breached the Lease is unavailing.
In sum, the Bankruptcy Court found in its thorough and well reasoned decision
The Bankruptcy Court found that Premier breached the Lease and that LG was entitled to an award of damages in the sum of $1,269,739.80. Premier has not challenged the damage award on appeal.
A separate order will be entered this date in accordance with this opinion.
