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Weird Times, LLC v. Ma

Court of Appeals of Texas, Seventh District, Amarillo

December 6, 2017

WEIRD TIMES, LLC, APPELLANT
v.
SHARON MA, APPELLEE

         On Appeal from the 353rd District Court Travis County, Texas, Trial Court No. D-1-GN-12-001076; Honorable Scott Jenkins, Presiding

          Before QUINN, C.J., AND CAMPBELL AND PIRTLE, JJ.

          MEMORANDUM OPINION

          PATRICK A. PIRTLE JUSTICE.

         This case arises from a dispute between a lessor and lessee in a commercial lease of property located in Travis County, Texas.[1] Appellant, Weird Times, LLC (lessee), appeals from a judgment in favor of Appellee, Sharon Ma (lessor), on her counterclaim for breach of their commercial lease agreement following the bench trial of an action originally filed by Weird Times based, in part, on a theory of breach of an implied warranty of suitability. The trial court awarded Ma a judgment for $885, 556.07 in past-due and accelerated rent and $142, 404.30 in attorney's fees. In a single issue stated in two parts, Weird Times asserts the trial court erred in its determination that (1) Ma did not breach an implied warranty of suitability owed to Weird Times and (2) that Ma did not forfeit her right to complain about Weird Times's failure to pay rent and property taxes due to that alleged breach. Because we find that Weird Times waived its right to an implied warranty of suitability from Ma, we affirm the trial court's judgment.

         Background

         Ma owns commercial property located at 12408 North MoPac Expressway in Travis County, Texas ("Mopac property"). Since the early 1980s, Ma and her tenants operated the property as a restaurant with outdoor seating. When the property was annexed by the City of Austin in 1984, its use as a restaurant was "grandfathered in" rather than requiring that it meet current code requirements for the City. In 2009, Jesse Fortney, part owner of Weird Times, visited the Mopac property to assess whether the property would be suitable for operating a restaurant and outdoor patio bar with live music. After Fortney performed his "due diligence, "[2] Ma leased the Mopac property to Weird Times pursuant to a commercial lease agreement effective September 1, 2009. Fortney negotiated the terms of the lease in thirty minutes without the assistance of an attorney to review it.

         On January 14, 2010, Ma and Weird Times executed a (Revised) Commercial Lease (hereinafter the "Lease") which was effective September 1, 2009 through August 31, 2011, replacing the first lease agreement. The Lease's terms were substantially the same as the earlier lease with the exceptions of the monthly rent and rental term. Section Four of the Lease stated that "LESSEE shall use the lease premises as a restaurant including the sale of alcoholic beverages and no other."[3] Section Five provided that Weird Times agreed "to indemnify and hold harmless [Ma] from any fine, code violation or other penalty resulting from [Weird Times's] use of the premises." (Emphasis added). Section Eight provided that Weird Times acknowledged it had fully inspected the leased premises and accepted them in their "as is" condition, accepted the leased premises as suitable for the purposes for which they were leased, and acknowledged that Ma made no representations or warranties regarding the leased premises, except as expressly provided in the Lease. According to the terms of the Lease, Weird Times was responsible to keep the roof, foundation, and exterior walls in good repair and condition as well as take "good care" of the leased premises and make all necessary repairs. At the end or other termination of the Lease, Weird Times was responsible for "deliver[ing] up the leased premises with all improvements and fixtures located thereon in good repair and condition, reasonable wear and tear . . . only excepted."

         Section Ten provided that "[Weird Times] agree[d] to indemnify and save [Ma] harmless . . . from all liabilities, fines . . . claims, demands and actions of any kind . . . [and] shall indemnify and hold [Ma] harmless . . . from any and all damages or liability for anything arising from or out of the condition of the premises or the occupancy thereof by [Weird Times]." (Emphasis added). Section Fifteen provided that "[i]f Lessee defaults in the performance of any obligations or covenants herein, [Ma] may enforce the performance of this lease in any manner provided by law." Under the Lease, Weird Times was responsible for the payment of monthly rent, real property taxes after the first year, attorney's fees in the event Ma filed an action for the enforcement of any agreement contained in the Lease, and penalties for late payment of rent. Furthermore, section Twenty-three provided that the Lease "constitute[d] the sole and only agreement of the parties hereto and supersede[d] any prior understandings or written or oral agreements between the parties respecting the within subject matter."

         In January 2010, Weird Times opened a restaurant with an outdoor patio bar and live music called "Weirdos." Business boomed.[4] At one event, there were 800 people by noon with gross sales of $30-50, 000 for the day. In May 2010, there was a particularly large event that drew a crowd of 1, 500 people. Thereafter, City officials visited Weirdos and launched investigations into Weird Times's use of the Mopac property.

         In June 2010, the City cited Weird Times for various violations of code ordinances.[5]After a meeting with City officials, Fortney understood that in order to continue operating the Mopac property primarily as an outdoor patio bar, Weird Times would need to rezone the Mopac property as a "cocktail lounge, " obtain an approved site plan, and a continuous use permit.[6]

         Weird Times retained counsel after receiving notice of the code violations. Its attorney advised Weird Times that it was "operating outside the lease as a cocktail lounge and not a restaurant." He also advised Weird Times to amend the Lease because it did not cover Weird Times's use of the Mopac property. Thereafter, Weird Times's attorney drafted an amendment to the Lease. According to Fortney, the amendment "[a]ccurately describe[d] how [Weird Times] was using the property in 2010." Fortney testified that the Lease amendment was the "beginning to get all the necessary permits and zoning" and it "allowed him to approach the City about obtaining permits and site plans so that [Weird Times] could have a restaurant/bar and outdoor music venue." Ultimately, Weird Times's approval process did not move beyond the submission of a site plan and issuance of a continuous use permit. Aside from the onerous approval process, there was a substantial question as to whether Weird Times could finance a complete "build out" of the proposed plan.

         In September 2010, the "First Amendment to (Revised) Commercial Property Lease" ("First Amendment") was executed to expand the scope of uses that could be conducted by Weird Times on the Mopac property.[7] Section Four was amended to provide that "[Weird Times] shall use the Leased Premises for the operation of a Restaurant, Cocktail Lounge and/or Outdoor Entertainment venue (as these are defined in Chapter 25-2 of the City of Austin Land Development Code, as amended), operating pursuant to a Texas Alcoholic Beverage Commission licensed beverage . . . permit." (Emphasis added). Section Twenty-eight provided that "[Ma] hereby authorizes [Weird Times] to serve in the capacity of agent for [Ma] for the sole purpose of applying for, processing and obtaining such . . . changes and/or permits as may be required by state and/or local government authorities for [Weird Times's] use of the Leased Premises for the uses provided in [s]ection Four herein." Ma agreed to "perform such future acts as may be required by the State and/or local governmental authorities [for the] issuance of a permit or permits for the purposes stated herein as may be reasonably necessary to allow for [Weird Times's] use of the Leased Premises for the uses provided in section Four herein." (Emphasis added). The First Amendment further provided that "should any governmental authority require a zoning change and/or a permit for a use that differs from or is addition to the uses permitted in [s]ection Four of the Lease, as amended by this Amendment, or an improvement on the Leased Premises . . . such zoning change and/or permitting shall be the responsibility of [Weird Times] and all costs associated therewith shall be borne by [Weird Times]." The First Amendment stated that the terms and provisions of the Lease, as amended, were ratified and the First Amendment/Lease would be construed as one instrument.

         After the First Amendment's execution, Weird Times sought to gain approval from various City agencies to change Weirdos's authorized use from a restaurant to a cocktail lounge. With Ma's cooperation, Weird Times changed the Mopac property's zoning from GR which permitted a restaurant serving mixed drinks with music inside to CS-1 which permitted the operation of a cocktail lounge. Under the CS-1 classification, a separate permit was required for outdoor music.[8]

         In May 2011, Ma and Weird Times entered into a second lease for an adjacent property owned by Ma (the "O'Neal property"). The lease provided that Weird Times "shall use the leased premises as a restaurant including the sale of alcoholic beverages and no other." With the exception of the "use" provision, monthly rent, lease duration, and subject matter, the terms of the O'Neal lease were the same as the Lease. After the O'Neal property lease was executed, City officials informed Weird Times that the property could not be used for parking until such time as the City approved a new site plan governing the property's use. Thereafter, according to Fortney, Ma "allowed them to cancel the lease" when there was a $23, 000 rent shortfall. After its termination, Weird Times never paid the shortfall and considered itself to have no future obligations to Ma with regard to the O'Neal lease.

         During the site plan approval process, City officials requested a drainage easement to encompass that portion of the Mopac property within a 100-year floodplain demarcated by FEMA. If executed, the drainage easement would encumber one-third of the property, require modifications to the existing structures or flood proofing, and likely prevent any redevelopment within the floodplain. Although there were possible alternatives to granting the City an easement, [9] Weird Times insisted that Ma execute the City's drainage easement form.

         Ma's decision not to sign the City's easement form was supported by her attorney, Jim Nias. In his opinion, what was being requested of Ma was unreasonable. Nias's biggest concern was how the easement would affect future development of the Mopac property. In his opinion, the main building, currently in use by Weirdos, was not the highest and best use of the property. In addition, Weird Times was in default on the Lease because it was behind in rent and had not paid any property taxes. He characterized Weird Times as an unreliable tenant and believed that if Ma encumbered one-third of her property for Weird Times's benefit and Weirdos was unable to make it financially or succeed with the redevelopment of the Mopac property, Ma would be damaged by having her property encumbered by the easement. He also interpreted the Lease/First Amendment to require that Weird Times absorb any costs associated with exploring alternatives to granting the City an easement.

         In December 2011, Ma's attorney sent Weird Times a letter indicating that it was delinquent in paying rent ($24, 500) and property taxes ($15, 398.13) for a total of $39, 898.13. In January 2012, Weird Times hired David Cancialosi, an expert in commercial land use and development in Austin. At the time, Weirdos's outdoor deck, bar, and stage had not been approved by the City and were within the floodplain. He testified he negotiated an agreement with the City whereby it would accept a drainage easement that allowed the noncompliant structures on the Mopac property to be exempt ...


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