APPEAL
FROM THE BENTON COUNTY CIRCUIT COURT [NO. 04CV-15-1241]
HONORABLE JOHN R. SCOTT, JUDGE
Dover
Dixon Horne PLLC, by: Carl F. "Trey" Cooper III,
for appellant.
Stephen Lee Wood, P.A., by: Stephen Lee Wood, for appellee.
DAVID
M. GLOVER, JUDGE
The
underlying facts of this case were set forth in
Commercial Fitness Concepts, LLC v. WGL, LLC, 2017
Ark.App. 148, 516 S.W.3d 764, where we affirmed in part and
reversed and remanded in part. Briefly, we affirmed the trial
court's finding that Commercial Fitness was liable for
the conversion of a computer-interface module/panel that
controlled the heating and cooling equipment. We reversed and
remanded, however, on the trial court's awards of
damages: "We therefore reverse and remand the damages
awards for the panel/module and for lost rents for the trial
court to take further action in accordance with this
decision." Id. at 11, 516 S.W.3d at 771. On
remand, the trial court accepted the parties' stipulation
that WGL "should recover damages in the amount of $2,
888.46 for the fair-market value of the controller, the cost
of replacement software, and the cost of installing the
software and controller." Consequently, as stated in the
September 13, 2017 judgment, "[t]he only issue before
the Court was the lost rents incurred by [WGL] which were
proximately caused by the conversion of the controller."
The trial court found WGL was "entitled to
one-month's rent in the amount of $55, 000 as special or
consequential damages caused by the conversion of the
controller." WGL filed a motion for reconsideration, and
Commercial Fitness responded. The trial court denied the
motion, explaining in part: "The award for lost rents is
proper and consistent with the instructions, on remand, from
the Arkansas Court of Appeals[, ]" and "[t]he Court
of Appeals remanded this case back to the trial court for
proof of the Plaintiff's lost rent
damages."[1]
In the
instant appeal, Commercial Fitness raises three points: 1)
the trial court erred as a matter of law in ruling that WGL
could recover damages for loss of use of real property based
on conversion of personal property; 2) the trial court's
finding that WGL proved by a preponderance of the evidence
that it was deprived of the use of its building is clearly
erroneous; and 3) the trial court's finding that WGL
proved by a preponderance of the evidence that Commercial
Fitness's conversion proximately caused WGL not to
collect rents for one month is erroneous and should be
reversed. We reverse and dismiss.
At the
August 30, 2017 hearing on remand, WGL presented only two
witnesses- Mike Charlton and Tim Salmonsen. Charlton
testified that he had been the manager of WGL since 2006. He
explained WGL was formed to build a custom-lease property for
Rhett Garner. He testified WGL had a ten-year written lease
with Garner, signed on November 14, 2006, and designated to
cover the period 2008-2018; Garner declared bankruptcy; the
bankruptcy trustee had possession during the bankruptcy; when
WGL regained possession, the first problem was there was no
air conditioning, and the building was not habitable in the
summertime without air conditioning. Charlton testified there
was no air conditioning in the facility because the computer
and the interface between the computer and the sixteen HVAC
units were missing. He explained he was in possession of the
property for two months before the computer was replaced in
August 2015. He further explained that "once he started
the process, it did not take two months to replace the
computer," but his discussions with Brandon Outlaw (who
owned Commercial Fitness) about returning the computer
"lasted a number of weeks." Charlton stated he
could not rent the building without the air-conditioning
systems because it was hard to get realtors to walk inside
because it was so hot, and it was uninhabitable without the
air conditioning. He said WGL sold the property in late
November 2015. He described his own work experience and
stated WGL was asking $55, 000 a month to lease the building.
On
cross-examination, Charlton said the last time WGL received
rent for the property was when Garner made his last payment
before filing for bankruptcy. Charlton described his efforts
to learn if insurance covered the air-conditioning situation
but reported he never received anything from insurance. He
acknowledged responding to an interrogatory that "when
it became apparent to plaintiff that defendant's
insurance company was not going to replace the BCMETH and
BCMPWS, plaintiff borrowed the money to pay for the cost of
replacing BCMETH and BCMPWS." He acknowledged WGL was
not able to lease the property the day after the modules were
in place; not able to lease it in September; and not able to
do so in October. In fact, he acknowledged WGL was never able
to lease the property; instead, the property was sold in
November, explaining, "I couldn't find anyone to pay
what I needed to rent the property." He then
acknowledged the reason WGL did not collect any rent for May,
June, July, and August was because its tenant had declared
bankruptcy and moved out, and if the tenant had still been in
the facility, the tenant would have been paying.
On
redirect examination, Charlton stated he had to borrow the
money to pay for the controller WGL purchased from Northwest
Controls; it was inconceivable to rent the property during
the months of May, June, and July 2015 without air
conditioning; and WGL had someone interested in renting if
the building had air conditioning, but when that person
learned there was no air conditioning, the individual was no
longer interested.
Tim
Salmonsen also testified at the hearing on remand. He
explained he was a commercial real-estate broker in Benton
County and had been for eleven years. He said he was
knowledgeable about commercial rental rates in Benton County,
and he described the variety of factors that determine the
fair-rental value of a commercial property. He stated he was
familiar with the property in question, and his job was to
find another tenant that could utilize the building.
Salmonsen
was then asked if he had an opinion regarding the fair
monthly rental value of the property from May to August 2015.
Commercial Fitness objected to the testimony as irrelevant,
but the trial court overruled the objection. Salmonsen then
stated his opinion that the fair monthly rental value of the
property was $56, 000 a month. He further stated, "We
had it listed for sale or lease, and we even had a couple of
people ask about it, but we couldn't let a renter lease
it because the air conditioner was not working at that
time." He did not believe anyone would want to occupy a
building with no air conditioning in the summer.
On
cross-examination, Salmonsen acknowledged that renters or
buyers often have demands or issues they want to address
before closing a deal; he said he did not know whether a $6,
000 issue would prevent a closing in a transaction involving
a $50, 000 a month rental payment or a $5 million purchase
price. He acknowledged the air-conditioning system had been
fixed in August, and he still did not lease or sell the
property until the end of November.
For its
first point of appeal, Commercial Fitness contends the trial
court erred as a matter of law in ruling WGL could recover
damages for loss of use of real property based on conversion
of personal property. We are not willing to rule, as a matter
of law, that consequential damages can never be established
in a conversion case where the conversion of personal
property causes loss-of-use damages concerning real property.
Our
original opinion quoted at length from McQuillan v.
Mercedes-Benz Credit Corp., 331 Ark. 242, 961 S.W.2d 729
(1998), for the general proposition that the market value of
the converted property is not the only measure of the damages
recoverable in an action for conversion; the circumstances of
the case may require a different standard, including a
measure of the expenses incurred as a result of the
conversion. As will be discussed, infra, we find
clear error in the trial court's finding that
consequential damages were established in this case; however,
we are not willing to hold that the trial court erred as a
matter of law in allowing evidence of and considering the
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