Jack Nelson Jones Professional Association

May 15-21, 2017

Preferred Med. Assocs., LLC v. The Abraham Family Tr., 2017 Ark. App. 260 (April 26, 2017)

This appeal comes from the Baxter County Circuit Court, honorable Gordon Webb presiding. This case concerns the breach of a commercial lease.

Preferred Medical Associates, LLC (“PMA”) is a limited-liability medical practice of which Dr. Adam Wozniak is a member and Dianna Owen is an employee. In February 2010, PMA leased office space from Dr. Simon Abraham (under the name Abraham Medical Center) in Mountain Home, Arkansas. The leased space was in the same facility that housed Dr. Abraham’s practice, and the lease contemplated that the two doctors would coexist and share certain medical equipment. PMA paid a $20,000 deposit and would pay rent of $10,000 per month for a term of eighteen months. The lease was signed by Dr. Abraham and his wife, Annie Abraham, as lessors; by Dr. Wozniak individually and on behalf of PMA; and by Ms. Owen individually. Five and a half months into the lease, PMA vacated the leased premises. As a result, the Abrahams sued PMA, Wozniak, and Owen (collectively, the “Appellants”) for breach of the lease and sought $125,000 in remaining rent due, plus incidental damages. The Appellants responded that their decision to vacate was justified because Dr. Abraham’s conduct toward them amounted to a constructive eviction from the premises.

At trial, the Appellants presented evidence of constructive eviction. Dr. Wozniak and Owen testified that Dr. Abraham made such unreasonable demands and placed such unreasonable restrictions on them during their occupancy that he deprived them of the use and benefit of the leasehold. By contrast, Dr. Abraham testified that the lease arrangement was working fine, with only minor adjustments being required. The circuit court found that Dr. Abraham’s conduct did not rise to the level of constructive eviction, and thus ruled that appellants breached the lease and calculated damages of $105,000. The court also found that Dr. Abraham acted reasonably to mitigate the damages and that all defendants, including the individual signatories on the lease, were jointly and severally liable for the damages award. Appellants appealed. This summary does not discuss the Abrahams’ standing to sue and authority to execute the lease, but the Court found that the Abrahams had authority to sign the lease individually even though the leased premises was owned by a trust of which the Abrahams were trustees.

On appeal, the Appellants first contended that Dr. Abraham constructively evicted them from the leased premises. The Court explained that conduct by a landlord that effectively deprives the tenant of the use and benefit of the premises amounts to a constructive eviction. The landlord’s conduct must be such that it will prevent the tenant’s use of the premises for the particular purposes for which it was leased. The particular acts or omissions by a landlord that amount to a constructive eviction cannot be defined by a general rule and depend on the facts of each case.

At trial, the Appellants presented evidence that the Abrahams interfered with their use of the leased premises by restricting their use of the leased space; failing to timely provide them with a key to the building; not allowing them to put up a sign outside the building; inhibiting their use and decoration of their office space; and otherwise preventing their full, quiet enjoyment of the leasehold. However, as the trial court noted, the evidence on this point was in conflict. Dr. Abraham said that he had received no serious complaints from Dr. Wozniak or Owen during their shared occupancy. In support of his testimony, he cited a letter written to him by Dr. Wozniak in which Dr. Wozniak stated that Appellants were vacating due to “unforeseen circumstances” and thanked Dr. Abraham for his “cooperation and hospitality.” Additionally, witness Sam Sparks, who was an employee of both Dr. Abraham and PMA, testified that he attended a meeting in July 2010 where appellants discussed moving PMA to another location. According to Sparks, the reason given by appellants was only that profits were down. In the Court’s view, the circuit court, faced with these differing views, properly acted as factfinder to resolve the evidentiary conflicts in the Abrahams’ favor. The Court deferred to the circuit court’s superior ability to determine credibility and give weight to the testimony.

The Appellants also argued that Dr. Abraham did not mitigate his damages by re-renting the space after Appellants’ vacation. According to the Court, a party cannot recover damages resulting from consequences that he could have reasonably avoided by reasonable care, effort, or expenditure. Reasonable diligence and ordinary care are all that is required. Dr. Abraham ran an ad in the paper seeking to rent the vacated space. He also said that he talked to several doctors, and to other people who knew doctors, to see if anyone currently in the area, or who might be moving to the area, needed office space. The court found these mitigation efforts to be reasonable, and Appellants offered no convincing argument to the contrary. The Court thus found no error in the circuit court’s conclusion.

As mentioned earlier, both Dr. Wozniak and Ms. Owen signed the lease as individuals. They argued on appeal that they could not be held personally liable on the lease because the lease reflected no mutuality of contract. Mutuality of contract, the Court explained, means that an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; thus neither party is bound unless both are bound. Dr. Wozniak and Owen insisted that mutuality was wanting in this case because the Abrahams had no obligation on the lease, having executed it in their individual capacities. Because the Court held that the Abrahams had the authority to execute the lease on behalf of the Trust and presumably did so as trustees, they did have an obligation on the lease. Mutuality of contract therefore existed. Ms. Owen also argued that the lease was unenforceable as to her because she gave no consideration for the lease. The Court responded that her pleadings and testimony indicated otherwise. She filed a counterclaim stating that the “Plaintiffs and Defendants” entered into the lease, and that she, along with her co-defendants, was seeking a refund of the security deposit and the rent paid. She further alleged in a “grievance sheet” attached to her counterclaim that she was “paying her portion of the lease” and that her husband had put up the $20,000 deposit. She also testified at trial that she was “part of” the lease. Additionally, Owen signed her name to the lease agreeing to be personally and individually liable of all obligations therein. The Court noted that parties are presumed to have read and understood their contracts. Affirmed.