ADLER V. DOUBLE EAGLE PROPERTIES HOLDINGS LLC (Tennessee Court Of Appeals, March 14, 2011).
Airways Commons, LLC ("Airways" or "Seller") owned a commercial office building located in Memphis, Tennessee. Apparently, there was a cellular tower/structure on top of the building. On November 30, 2005, Airways entered into an agreement styled "Rooftop Lease and Assignment Agreement" ("Rooftop Agreement") with Unison Site Management, LLC ("Unison"). Although Unison was not made a party to the lawsuit, the Rooftop Agreement was the subject of much disagreement between the parties.
The Rooftop Agreement purported to lease to Unison the rooftop portion of the building for the use and maintenance of the cellular tower. In exchange, Unison paid Airways $135,000 as complete consideration upon the signing of the Rooftop Agreement. Contemporaneously with the signing of the Rooftop Agreement, Unison assigned its interest in the agreement to its wholly-owned subsidiary, Cell Tower Lease Acquisition, LLC ("Cell Tower"). This assignment was styled "Assignment of Easement" and was recorded. Cell Tower was also not made a party to the action.
On April 8, 2008, Double Eagle Properties Holdings, LLC ("Double Eagle" or "Buyer") entered into an agreement with Airways for the purchase and sale of the entire building. This agreement was styled "Commercial Purchase and Sale Agreement" ("Purchase Contract"). The Purchase Contract contained an assignment of leases provision under which Airways assigned and conveyed its interest as landlord in all leases on the building to Double Eagle. Under the terms of the Purchase Contract, Airways was required to submit to Double Eagle a complete and accurate rent roll describing the terms of all leases on the building. As a "Special Stipulation," Paragraph 17 of the Purchase Contract stated that "[p]urchaser understands that Cingular Wireless has a perpetual easement on the property relating to cell towers on the roof. No rent is provided to the owner. Cingular Wireless pays their own utilities of $500-$750.00/month."
After execution of the Purchase Contract, but before closing on the purchase and sale of the building, Double Eagle asserted that the Rooftop Agreement was, in fact, a lease and that the $135,000 Unison paid to Airways was prepaid rent that should be prorated under the Purchase Contract and paid to Double Eagle. Airways contended that the Rooftop Agreement was, in fact, an easement and not subject to the assignment of leases, and that the $135,000 was the purchase price paid by Unison for the easement. As a condition to closing, the parties agreed to escrow the disputed funds.
The resulting litigation focused on whether the Rooftop Agreement was a lease or an easement, as the parties apparently agreed that a determination of this issue would be dispositive. The trial court determined that: (1) Paragraph 17 of the Purchase Contract (relating to a perpetual easement) was an incorrect statement upon which Double Eagle should have been able to rely; (2) the Rooftop Agreement was, in fact, a lease and not an easement; and (3) because the Rooftop Agreement was a lease and the Purchase Contract provided for the proration of rents, the $135,000 in dispute must be prorated as rent and paid to Double Eagle.
On appeal, the Appellate Court did not address the substantive issues raised by the parties. Instead, the Court stated that Unison and Airways presumably structured the Rooftop Agreement to suit their particular purposes, which could be related to tax and liability concerns, management of the roof area, or operation of the cellular tower. When the trial court determined that the Rooftop Agreement created a lease, and not an easement, in addition to determining the legal property interest created in Unison and assigned to Cell Tower, it also implicitly determined the ongoing structure of the relationship of the parties to the Rooftop Agreement as one of landlord-tenant. The Court stated that the existence of a judgment to this effect would certainly affect the dynamic between Double Eagle and Cell Tower. Furthermore, because on any given issue the substantive law of easements and leases may differ, a later arising dispute between Cell Tower and Double Eagle would likely include a dispute as to which entities exactly were bound by the instant declaratory judgment.
For these reasons, the Court believed that Cell Tower's absence from the lawsuit practically impeded its ability to protect its interest in the Rooftop Agreement and property interests created thereunder. Cell Tower's absence also exposed Airways and Double Eagle to a substantial risk of incurring multiple inconsistent obligations by the specter of future litigation construing the Rooftop Agreement by virtue of Cell Tower not being bound by the instant action.
The Court noted that the necessity of Cell Tower's inclusion in the instant action stemmed from the trial court's construction, at the behest of the parties, of the Rooftop Agreement. Cell Tower would not be a necessary party to a declaratory judgment action construing only the Purchase Contract between Airways and Double Eagle. However, the Court stated that when the trial court construes both documents, it necessarily passes judgment on the rights and obligations of Cell Tower, and, therefore, Cell Tower must be added as a party. Therefore, the Court vacated the judgment of the trial court and remanded for further proceedings consistent with its opinion.
Anthony Dorland
(612) 877-5258
DorlandA@moss-barnett.com