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LLC v. RMDR Investments, Inc.

Court of Appeals of Louisiana, Fourth Circuit

November 15, 2017

429 BOURBON STREET, LLC
v.
RMDR INVESTMENTS, INC. 429 BOURBON STREET, LLC
v.
RMDR INVESTMENTS, INC.

         APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2015-07064, DIVISION "C" Honorable Sidney H. Cates, Judge

          James M. Garner Ryan O. Luminais Jennifer H. Mabry Brandon W. Keay SHER GARNER CAHILL RICHTER KLEIN & HILBERT, L.L.C COUNSEL FOR PLAINTIFF/APPELLEE.

          Robert G. Harvey, Sr. LAW OFFICE OF ROBERT G. HARVEY, SR., APLC Donald C. Douglas, Jr. THE DOUGLAS LAW FIRM, LLC COUNSEL FOR DEFENDANT/APPELLANT.

          Court composed of Judge Edwin A. Lombard, Judge Rosemary Ledet, Judge Paula A. Brown.

          EDWIN A. LOMBARD JUDGE.

         The Appellant, RMDR Investments, Inc. ("RMDR"), seeks review of the district court's May 31, 2016 judgment ordering its eviction from property owned by lessor 429 Bourbon St., LLC ("the Appellee"). The appeal has been consolidated with a supervisory writ application filed by RMDR, which seeks review of the denial of its Ex Parte Motion to Release Continuing Suspensive Appeal Bond. Finding that the judgment of the district court is not manifestly erroneous, we affirm. The exceptions of lack of justiciable controversy and no cause of action of RMDR are denied. The answer to appeal of the Appellee is denied. Lastly, the writ application of RMDR is also denied.

         Facts:

         In January 2006, RMDR began leasing commercial space at 429-433 Bourbon St. ("the Property"), in New Orleans, from the Appellee. RMDR, doing business as Babe's Cabaret, operated a gentlemen's club and bar at the leased location for approximately a ten-year period.

         The initial lease ("the Lease") was executed by the parties in November 2005, and had a 60-month term commencing on January 1, 2006. The Lease provided for a percentage-based rental payment obligating RMDR to pay the Appellee "a percentage rent of twenty (20%) percent of annual gross sales income, before any payments or adjustments of expenses of any kind, and such percentage of any and every sources of business at the premises, with a cap of $50, 000 per month." However, the Lease did not contain a definition of "annual gross sales income." RMDR was also required to annually remit to the Appellee 15% of its profits at the Property. Moreover, Chandru Motwani, the Appellee's managing member, personally had a 15% ownership interest in RMDR. The Lease further provided RMDR with three options to renew for an additional five-year period.

         In 2009, RMDR's ownership changed. That same year, the parties executed an amendment to the Lease ("Amended Lease") imposing the following additional obligations upon RMDR to maintain and produce reports of its income and other financial records to the Appellee:

5.07 Maintenance of Books and Records. Throughout the term of this Lease, LESSEE shall maintain and preserve, for the longer of three (3) years or as required by federal and state tax authorities, after the dates of their preparation, full, complete and accurate books, records and accounts under and subject to generally-accepted accounting principles, including, but not limited to all income, of whatever source, generated by every source of business at the premises. LESSEE'S obligation to preserve such books, records and accounts shall survive the termination hereof.
5.08 Monthly Reports. LESSEE shall, at LESSEE'S expense, prepare and submit to LESSOR by the fifteenth (15th) day of each month (commencing March 15, 2009), a statement accurately reflecting for the immediately preceding month (or part thereof) all gross sales income, (including, but not limited to cover type charges, tip income), all expenses (including, but not limited to all alcohol and other inventory purchases, and payroll), and such other data or information as LESSOR may reasonably require.
5.09 Financial Statements. Within thirty (30) days following the end of each month during the term of this Agreement, LESSEE shall, at LESSEE'S expense, submit to LESSOR a balance sheet and an unaudited monthly profit and loss statement for every source of business at the premises. Each statement shall be signed by an authorized officer of LESSEE, attesting that it is true and correct. In addition, LESSEE shall, at LESSEE'S expense, submit to LESSOR, within ninety (90) days following LESSEE'S fiscal year end, a complete annual financial statement, prepared under and subject to generally accepted accounting principles by a certified public accountant reasonably satisfactory to LESSOR, showing the result of the operations of every source of business at the premises ("business") during such fiscal year.
5.10 Additional Reports. LESSEE shall also submit to LESSOR, for review and audit, such other forms, periodic and other reports, records, information and data as LESSOR may reasonably designate, in the form and at the times and places reasonably required (from time to time) by LESSOR, upon request, including, but not limited to sales tax statements and balance sheets. [Emphasis added.]

         It is undisputed that RMDR tendered monthly rental payments to the Appellee throughout its tenancy. Nevertheless, in October, 2014, Mr. Motwani, acting on the Appellee's behalf, sent correspondence to RMDR requesting monthly accounting reports required by the Lease from June 2009 through the date of the letter. RMDR, however, only submitted records for nine of the requested months. Moreover, after it delayed producing its books and records in New Orleans for the Appellee's review, RMDR eventually produced some of the requested financials.

         The Appellee later retained an independent accounting firm to examine RMDR's books and records following another incomplete record submission by RMDR. Based upon the accounting firm's report, prepared by Debbie Sawyer, CPA, the Appellee concluded that RMDR had underpaid its rent by $605, 822.91 from January 2012 to December 2014. The $605, 822.91 sum totaled $852, 369.40 with interest and penalties due under the Lease and/or Amended Lease. The Appellee placed RMDR in default and demanded the delinquent payments due be paid by June 10, 2015. It terminated the Lease the following month due to RMDR's noncompliance.

         The Appellee subsequently filed a petition for summary eviction, alleging that RMDR breached the Lease and Amended Lease. The Appellee alleged that RMDR breached the Lease or Amended Lease in the following three respects: 1) failed to pay the full rent required by the Lease; 2) failed to provide complete financial records; and 3) allowed unlawful activities to take place on the leased premises. Additionally, the Appellee asserted that RMDR's attempt to exercise the second option to extend the Lease term was null and void.[1]

         During a four-day bench trial, the district court heard testimony from eight witnesses, including three experts: Charles Theriot, CPA, who testified for RMDR; Bert Verdigets, CPA, who testified on behalf of the Appellee; and Ms. Sawyer. The district court entered judgment on May 31, 2016, ordering the eviction of RMDR; RMDR was ordered to vacate the Property by June 6, 2016. The district court also issued Reasons for Judgment wherein it explained that RMDR breached the Lease and/or Amended Lease by: 1) failing to maintain and preserve full, complete and accurate books, records and accounts for a three year period; 2) failing to have an authorized officer of RMDR sign the monthly balance sheet and profit and loss statements, attesting to their truth; 3) failing to produce complete annual financial statements prepared by a CPA; and 4) failing to accurately report income and thus, not paying the proper amount of monthly rent.

         This timely appeal followed.[2] RMDR presents the following three questions for review, which we understand to be its assignments of error and will refer to them as such throughout this opinion:

1. The district court erred in ordering the eviction of RMDR when the Appellee readily accepted the financial records of RMDR for many years, and there was no competent evidence [sic] and failed to show all of the records were inadequate;
2. The district court erred in ordering RMDR's eviction, when the Appellee failed to prove that RMDR underpaid rent; and,
3. The district court erred in ordering RMDR's eviction when the Court expressly found that the Appellee failed to prove that RMDR had any knowledge of alleged illegal activities on the premises.

         Standard of Review:

         A trial court's factual findings in an eviction matter are reviewed under the manifest error standard of review. Armstrong Airport Concessions v. K-Squared Rest., LLC, 15-0375, p. 9 (La.App. 4 Cir. 10/28/15), 178 So.3d 1094, 1100-01 [citations omitted]. "Under a proper manifest error review, the analysis by the reviewing court should focus on whether there was clear error for lack of a reasonable basis in the conclusions of the factfinder." Hayes Fund for First United Methodist Church of Welsh, LLC v. Kerr-McGee Rocky Mountain, LLC, 14-2592, p. 67 (La. 12/8/15), 193 So.3d 1110, 1150. However, legal questions, such as contractual interpretations, are reviewed under a de novo standard of review. Armstrong Airport Concessions, 15-0375, p. 9, 178 So.3d at 1101 [citations omitted].

         Inadequacy of RMDR's Financial Records

         In its first assignment of error, RMDR argues that the Appellee failed to demonstrate the insufficiency of the financial records RMDR submitted such that there was a material breach of the Lease and/or Amended Lease. The evidence adduced at trial, it asserts, does not support the Appellee's claims for three reasons:

• since 2009, RMDR provided monthly reports to the Appellee, which did not complain as to the insufficiency of those monthly reports until almost six [6] years later, in October of 2014. Moreover, the Appellee did not complain about the signing of those monthly reports by the company's accountant rather than an RMDR officer until it filed its petition for eviction;
• Mr. Motwani, on the Appellee's behalf, specifically told representatives for RMDR to stop sending the monthly financial records because it was costing him fees every time his attorney received and reviewed the financial records; and
• RMDR "fully and adequately" responded to all of the Appellee's demand for records, including arranging, in December 2014, for its records to be shipped from New Jersey to New Orleans so that the Appellee, and Ms. Sawyer, could review the records they had requested for the years of 2012-2014. RMDR avers that it subsequently provided Ms. Sawyer with all of its records, including Z tapes, daily sheets, bank statements, receipts, cash flow statements, general ledgers, for the requested years. Moreover, it answered two questionnaires drafted by Ms. Sawyer.

         RMDR asserts that it substantially complied with the terms of the Lease and the Amended Lease. The Appellee failed to establish that RMDR's financial records submissions were inadequate; thus, according to RMDR, this claim cannot form a basis for eviction.

         Based upon our review of the testimony adduced at trial from Mr. Motwani and Ms. Sawyer, we find that RMDR's arguments lack merit. First, Mr. Motwani testified that in 2009, attorneys representing the Appellee, requested that records be produced pursuant to the Lease via correspondence. He explained that he did not request records from RMDR from 2010 through October 2014 because of a family crisis. He testified that he was only receiving monthly income reports from RMDR, but he was not receiving a monthly statement signed by one of RMDR's officers, attesting that the statement was true and correct, as required by the Lease and/or Amended Lease. Moreover, it is undisputed that the monthly income statements were being prepared George Carapella, who was not a CPA. Section 5.09 of the Amended ...


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