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ITT Educational Services, Inc. v. AP Consolidated Theaters II Limited Partnership

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

July 19, 2016




         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.


         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 could call Shiu and Gilmore. Document #15-16 at 1-2. On December 7 Shiu responded and stated he was out of town and would be back in the office on December 9. Id. at 1. On December 10 Lee followed-up after not hearing from Shiu and Shiu said he was still trying to work on some language before calling. Document #15-17 at 1.

         On December 11, AP entered into a letter of intent with LISA Academy. Document #15-28. The letter stated: “This letter serves only to outline the basic terms from which a lease might be prepared. Only a written lease executed by both parties will bind the Landlord and the Tenant. No proposal, counter proposal, letter, or oral statement will be construed as binding on the Landlord.” Id. at 5.[5] On December 14, AP submitted a redlined, edited version of a proposed lease agreement with LISA Academy to LISA Academy’s attorney. Document #15-29.

         Also on December 14 Shiu sent Lee an email stating there was one section of the amendment that still troubled AP, i.e., the part dealing with “significant damage.” Document #15-18 at 5. Prior to sending Lee the email, Shiu sent a draft version of the email to Gilmore and the original draft ended with a request to ITT to, “Please reconsider this issue and let us know your thoughts.” Ex. EEE. That request was left out of the email sent to Lee. Document #15-18 at 5. Lee responded on December 18 with ITT’s position on the exterior damage issue. Id. at 4.

         AP and LISA Academy entered into a Lease Agreement on December 18, 2015. Document #15-30. On the same day, LISA Academy’s superintendent provided the Lease Agreement to the Executive Director of Arkansas Public School Resource Center and stated that AP wanted to keep the lease agreement quiet for seven days. Document #15-31.

         On December 22, Shiu forwarded Lee’s December 18 email to Gilmore and asked, “Is anyone going to respond to this [or are] we just sitting on it?” Ex. HHH. She responded: “Jay asked this morning when we could tell them. That would be Monday.” Id. Lee followed-up on December 28 and January 5, 2016 and asked if they could agree to the exterior damage provision of 10%. Ex. III at 1-2; Ex. JJJ at 1. The December 28 email was forwarded to Shiu and Gilmore by Anthony and he stated, “Please do not respond until next week.” Ex. III. On January 4, 2016 Shiu asked Anthony, “Is it time someone responds to ITT?” Id. Lee left a voicemail for Shiu on January 11, 2016. Ex. KKK.

         On January 11, 2016, LISA Academy informed AP that it had submitted its amendment application to expand its charter facility at 12200 Westhaven Drive. Ex. LLL. Later that day Anthony sent Lee an email that stated, “it looks as though we are not going to be able to agree to renewal terms. Please plan to vacate the facility according to the terms of our existing lease.” Document #15-18 at 1.

         B. Summary Judgment Standard

         A court should grant summary judgment if the evidence demonstrates that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The moving party bears the initial burden of demonstrating the absence of a genuine dispute for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party meets that burden, the nonmoving party must come forward with specific facts that establish a genuine dispute of material fact. Matsumoto Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). A genuine dispute of material fact is presented only if the evidence is sufficient to allow a reasonable jury to return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The court must view the evidence in the light most favorable to the nonmoving party and must give that party the benefit of all reasonable inferences that can be drawn from the record. Spencer v. Jackson Cnty. Mo., 738 F.3d 907, 911 (8th Cir. 2013). If the nonmoving party fails to present evidence sufficient to establish an essential element of a claim on which that party bears the burden of proof, then the moving party is entitled to judgment as a matter of law. Pedersen v. Bio-Med. Applications of Minn., 775 F.3d 1049, 1053 (8th Cir. 2015).

         C. Whether The Motion For Summary Judgment Is Premature

         ITT argues that the summary judgment motion is premature because discovery has not been completed. Rule 56(b) provides that “a party may file a motion for summary judgment at any time until 30 days after the close of all discovery” unless the court provides otherwise. Fed.R.Civ.P. 56(b). “Although discovery need not be complete before a case is dismissed, summary judgment is proper only if the ...

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