Vogler Reynolda Road, LLC v. Sci N.C. Funeral Servs., Inc.

Vogler Reynolda Road, LLC v. SCI N.C. Funeral Servs., Inc., 2017 NCBC 28.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF FORSYTH 15 CVS 94

VOGLER REYNOLDA ROAD, LLC,

Plaintiff,

v.
OPINION AND FINAL JUDGMENT
SCI NORTH CAROLINA FUNERAL
SERVICES, INC.,

Defendant.

1. THIS MATTER came on for trial without a jury before the undersigned

commencing on January 10, 2017. The matter is now ripe for final determination,

and the Court issues its Opinion and Final Judgment.

Ward and Smith, P.A., by John M. Martin, for Plaintiff.
Moore & Van Allen, PLLC, by Anthony T. Lathrop and Glenn E. Ketner III, for
Defendant.

Gale, Chief Judge.

I. INTRODUCTION

2. Plaintiff is the successor landlord and Defendant is the successor tenant

to the Amended and Restated Lease Agreement, effective as of January 1, 1990 (“1990

Lease”). The 1990 Lease provided an initial term followed by four automatic five-year

renewals. The initial term is defined as “a period of five (5) years commencing with

the 1st day of January, 1990, and expiring on the 31st day of December, 1995.” (Joint

Ex. 17, at 3.) The renewal terms are stated to begin on January 1, 1996; January 1,

2001; January 1, 2006; and January 1, 2011. (Joint Ex. 17, at 6–9.)
3. There is an obvious inconsistency in the initial term, which states that

the term is a five-year period, but the calendar dates are a six-year period. Neither

party noticed the inconsistency in the initial term until July 2014, during the last

renewal term. Until then, all parties proceeded on the assumption that the 1990

Lease expired on December 31, 2015.

4. The 1990 Lease affords the tenant an option to purchase the property,

which expires when the lease expires. The 1990 Lease provides that rent will be

doubled for any period that the tenant holds over.

5. The parties’ disputes fall into three categories. First, they disagree

about when the 1990 Lease expired. Plaintiff contends that the stated initial term

contained a scrivener’s error because the parties intended it to be a five-year term,

and that the 1990 Lease should be reformed to state that the initial term expired on

December 31, 1994, the last renewal term began on January 1, 2010, and the final

term expired on December 31, 2014. Defendant contends that the calendar dates

specified in the 1990 Lease for both the initial term and each renewal term reflect the

parties’ actual agreement, that reformation is not appropriate, and that the 1990

Lease did not expire until December 31, 2015. Alternatively, Defendant asserts

equitable defenses against reformation.

6. Second, the parties disagree whether the option to purchase has expired.

Defendant made no effort to exercise that option in 2014, so its right to purchase

depends on the lease not expiring until December 31, 2015. Plaintiff contends that

even with a December 31, 2015 expiration date, the option to purchase expired
because Defendant did not satisfy its performance obligation during the lease term.

Defendant contends that it gave timely notice of its intent to exercise the option and

its further performance obligations have been suspended by the litigation.

7. Third, the parties disagree as to whether Defendant is obligated to pay

holdover rent between the date that the lease expired and the date of the Court’s

judgment.

8. Based on the following Findings of Fact and Conclusions of Law, the

Court issues its Opinion and Final Judgment that the 1990 Lease expired on

December 31, 2015; that Defendant gave timely notice of its intent to exercise its

option to purchase but failed to satisfy its obligation to establish a purchase price

before the lease expired; and that Defendant is obligated to surrender the property

and pay holdover rent from and after January 1, 2016.

II. PROCEDURAL HISTORY

9. Plaintiff initiated this action on January 9, 2015. The case was

designated as a mandatory complex business case on January 13, 2015, by order of

Chief Justice Mark Martin, and assigned to the undersigned that same day.

10. On February 2, 2016, Plaintiff filed its Supplemental Complaint. On

March 1, 2016, Defendant filed its answer, defenses, and second amended

counterclaim. Both parties seek the Court’s declaratory relief as to the lease

expiration date and Defendant’s right to purchase the leased property. Defendant

pled that the affirmative defenses of estoppel, waiver, laches, and unclean hands bar

Plaintiff’s reformation claim and now seeks to assert an additional affirmative
defense based on a statute of repose or a statute of limitations. Defendant’s

counterclaim seeks to recover damages if the 1990 Lease expired on December 31,

2014, because Plaintiff failed to timely notify Defendant of its contention.

11. Neither party demanded a jury trial. Following a full course of

discovery, trial commenced on January 10, 2017, at the North Carolina Business

Court, 1834 Wake Forest Road, Room 3206, Winston-Salem, North Carolina. After

the close of evidence, the parties submitted posttrial briefs and proposed findings of

fact and conclusions of law on January 25, 2017. The Court heard final arguments

and took the matter under submission on January 31, 2017.

12. All issues and claims are now ripe for determination.

III. FINDINGS OF FACT
13. Any determination later stated as a conclusion of law that should have

been stated as a finding of fact is incorporated in these Findings of Fact.

14. The Court incorporates the extensive stipulations stated in the Revised

Joint Proposed Final Pretrial Order entered on January 10, 2017.

15. The Court admitted into evidence 150 joint exhibits, as well as

additional exhibits introduced at various video depositions, and received testimony

both by witnesses appearing at trial and by video depositions.

A. The Parties and Related Witnesses

16. F. Eugene Vogler (“Mr. Vogler”) established Vogler & Sons, Inc. (“Vogler

& Sons”), which operated a funeral home at 2951 Reynolda Road, Winston-Salem,

North Carolina (the “Property”). After Mr. Vogler died on October 1, 2002, Plaintiff

Vogler Reynolda Road, LLC (“Plaintiff”) was formed to own the Property and is the
successor landlord of the 1990 Lease. Plaintiff’s members are Mr. Vogler’s four

children: Eugene Vogler III (“Gene Vogler”), John Mosby Vogler (“Mosby Vogler”),

Joseph Vogler, and Whitley Vogler Rotgin (“Whitley Rotgin”). Whitley Rotgin is

married to Charles Rotgin, an experienced real-estate professional.

17. Plaintiff’s initial manager was John Royster, Mr. Vogler’s long-time

personal accountant. Prior to his death, Mr. Vogler regularly entrusted his financial

affairs and decisions to Mr. Royster, as well as to William Petree, Mr. Vogler’s

long-time personal counsel, and members of the law firm Petree, Stockton &

Robinson. Stephen Johnson (“Mr. Johnson”) was at relevant times an associate at

that firm.

18. Effective December 21, 1988, Vogler & Sons was acquired by Sentinel

Group, Inc. (“Sentinel”), which operated funeral and cremation facilities throughout

the Southeast. Jerald Pullins was Sentinel’s president and CEO. Timothy Birch was

one of Sentinel’s vice presidents. Walter Cook was Sentinel’s general counsel. In

1990, Sentinel refinanced its acquisition line of credit with Provident Services, Inc.

(“Provident”).

19. Service Corporation International acquired Sentinel, effective April 5,

1991, and then formed SCI North Carolina Funeral Services, Inc., the Defendant in

this litigation and the successor tenant of the 1990 Lease. The Court refers to these

parties collectively as “SCI.” Ms. Irmgard Johnson (“Ms. Johnson”) is SCI’s Manager

of Real Estate and Leases.
B. The Chronological Leases

20. Mr. Vogler owned the Property during his lifetime. He initially leased

the Property to Vogler & Sons pursuant to a lease that had a fifteen-year term,

beginning March 1, 1970, and ending February 28, 1985 (“1970 Lease”). (Joint Ex. 1,

at 1.) The 1970 Lease, with its amendments, was in force until January 1, 1990.

21. On January 17, 1985, Mr. Vogler and Vogler & Sons executed an

amendment to the 1970 Lease that extended the term through February 28, 1990,

and gave Vogler & Sons the option for two five-year renewals (“1985 Amendment”).

(Joint Ex. 2, at 2, 4–5.) The 1985 Amendment provided that the base rent be adjusted

upon any renewal based on the Consumer Price Index (“CPI”) and carried forward

the provision from the 1970 Lease that, in addition to base rent, the tenant would

make an annual payment based on a percentage of the funeral home’s revenue

(“Override”). (Joint Ex. 2 at 3–4.)

22. Mr. Vogler and Sentinel negotiated a substantial lease amendment in

connection with Sentinel’s 1988 acquisition of Vogler & Sons (“1988 Lease

Amendment”). (Joint Ex. 11.) Negotiations were between Mr. Pullins and Mr. Birch,

on behalf of Sentinel, and Mr. Rotgin, with financial advice from Mr. Royster, on

behalf of Mr. Vogler. Collectively, these witnesses have a clear recollection of the

1988 Lease Amendment’s essential terms.

23. The 1988 Lease Amendment made at least three substantive changes to

the existing lease. First, the 1988 Lease Amendment provided for a maximum

twenty-five-year lease term, divided into five five-year renewal terms, to begin on
March 1, 1990, with the final renewal term beginning on March 1, 2010, and ending

on February 28, 2015. (Joint Ex. 11, at 13–17; see Joint Ex. 2, at 4–6.) Second, the

1988 Lease Amendment included an option to purchase with detailed provisions as

to when and how it must be exercised (“Purchase Option”). (Joint Ex. 11, at 20–22.)

Third, the 1988 Lease Amendment provided for double rent should the tenant hold

over. (Joint Ex. 11, at 14.)

24. A Memorandum of Lease was recorded for the 1988 Lease Amendment,

stating that the 1970 Lease, as amended, had a maximum term of forty-five years—

a period from March 1, 1970, to February 28, 2015. (Joint Ex. 12.)

25. The 1990 Lease was executed as a new lease rather than as an

amendment to the earlier amended 1970 Lease. In contrast to the 1988 Lease

Amendment negotiations, Mr. Pullins and Mr. Birch have no independent recollection

of any negotiations of the 1990 Lease. Mr. Rotgin and Mr. Royster were not involved

in negotiating the 1990 Lease at all, and in fact, neither became aware of the 1990

Lease until several years later.

26. While the 1990 Lease was executed as a new lease, it was intended to

incorporate the essential terms of the 1988 Lease Amendment while changing the

lease periods to be based on the calendar year.

27. The 1990 Lease became effective on January 1, 1990. (Joint Ex. 17, at

1.) Sentinel executed the 1990 Lease on May 24, 1990, and Mr. Vogler executed it on

October 10, 1990. (Joint Ex. 17, at 42.)
28. The 1988 Lease Amendment provided that the first five-year renewal

term would begin on March 1, 1990, and that the maximum twenty-five-year term

was between March 1, 1990, and February 28, 2015. When changing the term to a

calendar-year period beginning on January 1, 1990, the 1990 Lease necessarily would

have to either shorten or extend the twenty-five-year maximum term. A period of

January 1, 1990, to December 31, 2014, would shorten that maximum term by two

months. A period of January 1, 1990, to December 31, 2015, would extend that

maximum term by ten months.

29. Mr. Cook was the primary draftsmen of the 1990 Lease. He drafted the

1990 Lease to define the initial term as “a period of five (5) years commencing with

the 1st day of January, 1990, and expiring on the 31st day of December, 1995.” (Joint

Ex. 17, at 3.) Without more, the language allows for two interpretations: (1) that the

parties intended for the initial term to be six years, as defined by the stated calendar

dates, or (2) that the parties intended for the initial term to be five years, and the

calendar dates are incorrectly stated.

30. If the intent was for the initial term to be only five years, the lease

contains a scrivener’s error in stating the expiration date for the initial term as

December 31, 1995, rather than December 31, 1994, and that error is compounded by

having the renewal terms begin on January 1, 1996; January 1, 2001; January 1,

2006; and January 1, 2011, rather than on January 1, 1995; January 1, 2000; January

1, 2005; and January 1, 2010. (Joint Ex. 17, at 3, 6–9.) If the intent was for the initial

term to be longer than five years to accommodate moving the lease term from March
1 to January 1 without shortening the twenty-five-year maximum term allowed by

the 1988 Lease Amendment, then the only scrivener’s error is describing the initial

term as five years rather than six years.

31. The 1990 Lease carried forward the provision that the annual base rent

would be adjusted at the beginning of each five-year renewal term based on the CPI

increase during the “preceding five (5) year lease period.” (E.g., Joint Ex. 17, at 6.)

Plaintiff argues that for the renewal term beginning January 1, 1996, the CPI rent

adjustment would have to be based on the CPI increase during the preceding six-year

lease period if the correct initial term ran from January 1, 1990, to December 31,

1995. That is not a necessary conclusion, as the CPI rent adjustment on January 1,

1996, could be based on the CPI increase during the last five years of a six-year term.

32. When the 1990 Lease was being negotiated, the existing term of the

1988 Lease Amendment would end on February 28, 1990, and Mr. Vogler would have

received the CPI-based rent increase when the lease renewal term began on March

1, 1990. Gene Vogler has no recollection of the lease negotiations themselves, but

does recall that, at Sentinel’s request, he secured Mr. Vogler’s agreement to receive

the increased rent two months early. Gene Vogler recalls nothing further regarding

the 1990 Lease, and indicated that had he received any letters regarding the lease,

he would not have read them but would have forwarded them to Mr. Petree or his law

firm. He testified that the lawyers were the only ones who negotiated the 1990 Lease

and Mr. Vogler depended upon his lawyer to finalize the terms of the 1990 Lease.
C. Other Documents Contemporaneous with the 1990 Lease

33. Each party argues that other contemporaneous documents support their

position. The documents include correspondence preceding execution of the 1990

Lease and other documents executed in reference to the 1990 Lease and the

refinancing transaction that required the new lease.

(1) Correspondence of counsel

34. The 1990 Lease was drafted by Mr. Cook and reviewed by Mr. Johnson,

under Mr. Petree’s supervision. There are no available drafts of the 1990 Lease. The

parties located limited correspondence regarding the 1990 Lease. Neither Mr. Cook

nor Mr. Johnson has any independent recollection regarding the 1990 negotiations

beyond the documents. Mr. Cook did not recall any letters until they were presented

to him at his deposition. While letters suggest that Mr. Birch may have had some

involvement in the 1990 Lease negotiations on behalf of Sentinel, he has no

recollection of specific negotiations other than shown in the documents. Mr. Birch

was able to testify only about Sentinel’s general lease practices at the time.

35. Mr. Cook sent a letter dated January 24, 1990, to Gene Vogler, copied to

Mr. Birch, referring to the 1990 Lease. (Joint Ex. 18.) The letter states that the 1990

Lease is based on the 1970 Lease, as amended, but provides for a lease term based on

“a calendar year basis, effective January 1, 1990,” and that the “term otherwise

running from March 1, 1990 through February 28, 1995, will instead run from

January 1, 1990 through December 31, 1995, and will be followed by four consecutive

five-year renewal periods.” (Joint Ex. 18, at 1.) Later correspondence suggests that
Mr. Cook’s initial draft of the 1990 Lease refers to this initial term as a five-year

period, although his letter does not.

36. Mr. Johnson reviewed the draft of the 1990 Lease at Mr. Petree’s

direction. On April 23, 1990, Mr. Johnson faxed Mr. Vogler a multipage letter

containing forty-one numbered paragraphs commenting on specific provisions in the

draft of the 1990 Lease, and presumably enclosing a copy of Mr. Cook’s draft of the

1990 Lease. (Joint Ex. 19.) Numbered paragraph four of Mr. Johnson’s letter stated:

At the bottom of page 3, the five year term commencing
January 1, 1990 and expiring on the 31st day of December 1995
effectively extends the term. Under the existing Amendment, the initial
term ends on February 28, 1990 and is extended automatically for five
five-year terms so that the maximum term ends on February 28, 2015.
Under the Amended and Restated Lease Agreement, the maximum term
ends on December 31, 2015.

(Joint Ex. 19 ¶ 4.)

37. Mr. Johnson’s letter did not note the inconsistency in referring to the

initial term as a five-year period while stating a six-year calendar period. (See Joint

Ex. 19 ¶ 4.)

38. Mr. Johnson does not believe that he directly spoke with Mr. Vogler

regarding the 1990 Lease.

39. Mr. Cook responded to Mr. Johnson’s letter on April 25, 1990. (Joint Ex.

20.) Referring to numbered paragraph four of Mr. Johnson’s letter, Mr. Cook stated,

“[t]his comment was intended for Mr. Vogler’s benefit, but I believe reflects the

business deal on which the parties have agreed.” (Joint Ex. 20, at 1.) Mr. Cook does

not recall ever noticing the inconsistency in how he defined the initial term until he

learned of it during this litigation.
40. Both Mr. Cook and Mr. Johnson specifically noted that the 1990 Lease

had effectively extended the lease term when compared to the 1988 Lease

Amendment. (Joint Ex. 17, at 3; see Joint Ex. 19 ¶ 4; Joint Ex. 20, at 1.)

41. These two letters are the only documentary evidence of negotiations

regarding the 1990 Lease other than the final executed documents, which in addition

to the 1990 Lease itself include a memorandum of lease and a Landlord Estoppel

Certificate.

(2) The Recorded New Memorandum

42. Mr. Vogler signed a new memorandum of lease regarding the 1990 Lease

on October 10, 1990—the same day he executed the 1990 Lease. (Joint Ex. 24.)

Sentinel executed that document on October 17, 1990.

43. On October 19, 1990, Mr. Johnson advised Sentinel that the new

memorandum that had been executed contained an error because it did not reference

the Purchase Option. (Joint Ex. 23.) Mr. Johnson prepared and enclosed a revised

new memorandum that added a reference to the Purchase Option, but made no other

changes. Sentinel executed the revised new memorandum on November 9, 1990, and

Mr. Vogler executed it on December 6, 1990—the day it was recorded (“Recorded New

Memorandum”). (Joint Ex. 26.)

44. The Recorded New Memorandum referred to “a term beginning the first

day of January 1, 1990, and continuing for a maximum period of twenty-five (25)

years, including extensions and renewals.” (Joint Ex. 26, at 2.) Mr. Johnson recalls

being advised by Mr. Petree that the maximum term was twenty-five years. This, of
course, was the basic agreement of the 1988 Lease Amendment, but as noted, the

maximum term as measured by the 1988 Lease Amendment would have to be either

shortened or extended when changing the lease term to be based on a calendar year.

45. The definition in the initial term of the 1990 Lease as executed

apparently did not change from the draft of the 1990 Lease that Mr. Cook and Mr.

Johnson discussed in their letters. There is no evidence that Mr. Johnson ever

modified his observation that the 1990 Lease effectively extended the lease term from

that provided by the 1988 Lease Amendment or that the 1990 Lease would expire on

December 31, 2015. Mr. Johnson also apparently never recognized that a lease

beginning January 1, 1990, and ending December 31, 2015, would have a maximum

term of twenty-six years.

46. The Recorded New Memorandum did not specify the final termination

date of the 1990 Lease. It did provide that, “[i]n the event of any conflict between the

terms of this memorandum and [the 1990 Lease], the terms and provisions of [the

1990 Lease] shall govern.” (Joint Ex. 26, at 3.)

(3) The Landlord Estoppel Certificate

47. Sentinel and Provident closed their refinancing on November 13, 1990.

In connection with the closing of the refinancing, Mr. Vogler signed a Landlord

Estoppel Certificate that provided that the “[l]andlord hereby confirms that the

[l]ease term commenced January 1, 1990, and, unless properly renewed, will

terminate on December 31, 1995.” (Joint Ex. 27 ¶ 7.) The Landlord Estoppel
Certificate did not refer to this initial term as being for either five years or six years,

and it did not describe the renewal periods.

D. The Parties’ Course of Performance Under the 1990 Lease

48. In addition to contending that the calendar dates specified in the 1990

Lease accurately reflect the parties’ intent at the time of execution, SCI contends that

any ambiguity should be resolved by the course of performance between the parties.

Plaintiff counters that SCI, as the successor tenant, cannot use its own course of

performance to prove the intent of the original parties to the lease.

49. After SCI acquired Sentinel in 1991, it prepared a recurring-payables

schedule, dated October 24, 1991, for its various leases. The schedule noted for the

1990 Lease that the initial term was from January 1, 1990, to December 31, 1995,

and that the first CPI rent adjustment would occur on January 1, 1996. (Joint Ex.

32.) SCI also created an abstract of the 1990 Lease that stated that the automatic

five-year renewal terms began on the January 1 anniversary dates stated in the 1990

Lease, beginning January 1, 1996, and showed a final expiration date of December

31, 2015. (Joint Ex. 38, at 3.) There were other documents, including Lease

Expirations and Renewal Options Reports, that tracked the 1990 Lease on the basis

of the five-year renewal terms provided by the lease, but these reports did not state

a specific final termination date. (See, e.g., Joint Ex. 55, at 40; Joint Ex. 59, at 21.)

50. Mr. Vogler’s death was one of the events that could trigger SCI’s

Purchase Option, as it was first written in the 1998 Lease Amendment and then

carried forward in the 1990 Lease. On November 4, 2002, Mr. Rotgin, then unaware
that the 1990 Lease had been executed, notified SCI of Mr. Vogler’s death and

requested that SCI advise whether it intended to execute the Purchase Option. (Joint

Ex. 41.) Ms. Johnson responded on SCI’s behalf and referred to the 1990 Lease in

her letter to Mr. Rotgin. Mr. Rotgin did not notice this reference and continued to

believe that the 1988 Lease Amendment remained in force.

51. Mr. Royster from time to time reviewed calculations of the Override

payments due under the lease. The basic method of calculating the Override

payments did not change from the 1988 Lease Amendment to the 1990 Lease. Thus,

Mr. Royster did not need to be aware of the 1990 Lease to conduct such review.

52. Mr. Royster became Plaintiff’s manager when it was formed following

Mr. Vogler’s death in 2002. In February 2008, Mr. Royster learned of the 1990 Lease

when he was renewing arrangements for maintenance and repairs at the Property.

He realized that neither he nor anyone on the Vogler family’s behalf had a copy of the

1990 Lease. (Joint Ex. 57.) Ms. Johnson provided Mr. Royster a copy of the 1990

Lease at his request.

53. Mr. Royster and Ms. Johnson regularly communicated regarding the

CPI rent adjustments at the beginning of each renewal term. The recalculations were

made and accepted on the January 1 renewal dates stated in the 1990 Lease—

January 1, 1996; January 1, 2001; January 1, 2006; and January 1, 2011. (See, e.g.,

Joint Ex. 54.) Neither of them made a calculation retroactive to January 1, 1990.

Neither Ms. Johnson nor Mr. Royster noted the inconsistency in how the 1990 Lease’s

initial term was stated. Neither raised questions as to the timing of the renewal
periods stated in the 1990 Lease or the date on which CPI rent adjustments were

made.

54. Mr. Royster and Ms. Johnson corresponded on January 21, 2011,

acknowledging that the final five-year renewal period had begun on January 1, 2011.

(Joint Ex. 73.) On that same date, Mr. Royster prepared a spreadsheet reflecting the

CPI rent increases extending back to March 1, 1990. (Joint Ex. 74.) The last line of

his spreadsheet reflected a final lease term of January 1, 2010, to December 31, 2014.

(Joint Ex. 74.) In response to the Court’s inquiry at trial, Mr. Royster stated that, to

accurately reflect his understanding at the time he prepared the spreadsheet, the

final lease term on the spreadsheet should have been stated as January 1, 2011, to

December 31, 2015.

55. Until summer 2014, Plaintiff and SCI had a mutual understanding that

the renewal dates stated in the 1990 Lease were correct and that the final term of the

lease began on January 1, 2011, and ended on December 31, 2015. No witness

testified to any different understanding prior to July 2014.

56. SCI conducted an initial review of Sentinel’s leases in connection with

its due diligence before acquiring Sentinel in 1991, but Ms. Johnson understood that

the review was limited to examining final expiration dates and the inclusion of a

purchase option. There is no indication that anyone during this due diligence noted

the inconsistency in the definition of the initial term of the 1990 Lease.

57. There is no evidence suggesting that Mr. Vogler or others on his behalf

would likely have undertaken a retroactive review of the initial and renewal lease
terms. Mr. Vogler had his rent receipts directly deposited into an investment account.

There is no evidence that Mr. Vogler ever questioned or responded to Mr. Johnson’s

April 1990 letter indicating that the final expiration of the 1990 Lease was December

31, 2015.

58. As there is no evidence that any party discovered the inconsistency in

the 1990 Lease prior to July 2014, there is no evidence suggesting that the parties

consciously failed to take timely action regarding the inconsistency prior to July 2014.

The Court concludes that the parties to the 1990 Lease were not negligent by failing

to discover the inconsistency before July 2014.

E. The Dispute as to the Final Expiration Date Arises

59. Mosby Vogler left Vogler & Sons in 2006 to establish his own funeral

home in Winston-Salem. Sometime before or around July 1, 2014, Mosby Vogler

reviewed the 1990 Lease to confirm its expiration date because he was considering

lease options for his own funeral home.

60. Sometime on or around July 1, 2014, Mr. Rotgin and Mosby Vogler had

discussions regarding the 1990 Lease’s expiration date and for the first time

recognized the inconsistency in how the initial term had been defined, leading to the

question whether the 1990 Lease would expire on December 31, 2014, rather than on

December 31, 2015, as they had understood until then. (See, e.g., Joint Ex. 84.) Mr.

Rotgin suggested that Plaintiff contact SCI to solicit SCI’s position regarding the

inconsistency and its effect on the 1990 Lease’s expiration date.
61. If the 1990 Lease would expire on December 31, 2014, SCI would be

required to give notice of its intent to exercise the Purchase Option by October 2,

2014.

62. On October 6, 2014, Plaintiff notified SCI of its contention that the 1990

Lease expired on December 31, 2014. Mr. Royster, who was still Plaintiff’s manager,

wrote Ms. Johnson, stating:

Based upon a recent review of the lease, the last five-year lease
extension period expires on December 31 of this year, and the Lease
Agreement terminates effective on that date.

Since SCI has elected not to exercise the Purchase Option as set
forth in Section 26 of the Lease Agreement, we need to discuss an orderly
transition of the occupancy of the leased premises. As a part of that
transition, we will want to inspect the premises on or before December
1, 2014 with a representative of [SCI] in order to identify and resolve
any issues.

(Joint Ex. 88.)

63. This letter was the first indication to SCI that Plaintiff contended that

the 1990 Lease would expire before December 31, 2015. SCI did not send a written

response to the letter. There is no evidence that SCI stated its intent to exercise the

Purchase Option during 2014.

64. In December 2014, the parties reached an agreement that SCI would

remain in possession of the Property pending a court determination regarding the

1990 Lease’s expiration date. There is no evidence that this agreement further

included an agreement to toll any performance obligations of the Purchase Option or

to suspend any obligation to pay holdover rent.
65. SCI contends that Plaintiff’s reformation claim should be barred, and

that Plaintiff acted in bad faith and breached an implied covenant of good faith by

Plaintiff not notifying SCI until October 6, 2014, of its contention that the 1990 Lease

would expire on December 31, 2014, effectively precluding SCI from being able to

exercise the Purchase Option. SCI suggests that Plaintiff did so to benefit Mosby

Vogler in connection with his competing funeral home. SCI seeks damages as a result

of that breach. Any such damages would occur only if the Purchase Option was lost

because the 1990 Lease expired on December 31, 2014.

66. Mosby Vogler was candid in testifying that he looked forward to SCI

being “gone.” But, he only owns a 25% interest in Plaintiff. There is no evidence of

any agreements by, or negotiations between, Mosby Vogler and Plaintiff providing

that Plaintiff would sell or lease the Property to Mosby Vogler after the 1990 Lease

and the Purchase Option expired.

67. There is no other evidence upon which a finding of bad faith or the

breach of an implied covenant of fair dealing could rest. The Court concludes that

SCI’s claim of bad faith has no evidentiary support.

F. The Weight of the Evidence is that the Calendar Dates Specified in the 1990
Lease Reflect the Parties’ Intent, and the Last Renewal Term Commenced on
January 1, 2011, and Expired on December 31, 2015.

68. The evidence is clear that, when entering the 1990 Lease, the parties

intended to change the lease term stated in the 1988 Lease Amendment to coincide

with a calendar year. There is no specific evidence that the parties intended to

shorten the maximum twenty-five-year term provided by the 1988 Lease Amendment
commencing on March 1, 1990. There is specific evidence that counsel for both

landlord and tenant understood that the 1990 Lease extended the maximum lease

term and that the 1990 Lease would expire on December 31, 2015, rather than

February 28, 2015, as provided by the 1988 Lease Amendment.

69. The calendar period for the initial term—January 1, 1990, to December

31, 1995—is six years. There is no clear evidence that the parties intended that a

description of that term as a five-year period would take precedence over the stated

specific calendar dates.

70. While there is an inconsistency in the definition of the initial term of

the 1990 Lease, there is no such inconsistency in the definition of the five-year

renewal terms, as each is defined as a five-year period beginning on January 1 and

expiring on December 31 in the following fifth year. The 1990 Lease clearly states

that five-year renewal terms would begin on January 1, 1996; January 1, 2001;

January 1, 2006; and January 1, 2011. Correspondence between counsel for the

parties reflects that, prior to the execution of the 1990 Lease, the parties understood

that the final expiration date of the 1990 Lease would be December 31, 2015.

71. The Court need not consider the subsequent course of performance to

conclude that the parties initially intended for the lease to expire on December 31,

2015. However, this conclusion is consistent with the parties’ subsequent course of

performance.

72. In fact, reforming the lease as Plaintiff requests would be inconsistent

with Mr. Johnson’s advice to Mr. Vogler in his April 30, 1990 letter that the 1990
Lease “effectively extend[ed] the term,” and that the last renewal term “ends on

December 31, 2015,” (Joint Ex. 19 ¶ 4,) and with the manner in which the parties

approached renewals under the 1990 Lease.

73. The Landlord Estoppel Certificate confirmed an initial term of January

1, 1990, to December 31, 1995, and does not support the reformation of the 1990

Lease.

74. The Recorded New Memorandum does not constitute clear evidence

supporting reformation of the 1990 Lease.

75. The greater weight of the evidence establishes that the stated calendar

dates in the 1990 Lease reflect the parties’ intent that the initial lease period was

from January 1, 1990, to December 31, 1995, followed by four five-year renewal terms,

the first commencing on January 1, 1996, and the last renewal expired on December

31, 2015.

76. Having so concluded, the Court need not further consider SCI’s

equitable defenses that Plaintiff’s reformation claim should be barred.

G. SCI’s Attempt to Exercise the Purchase Option

77. The Purchase Option in the 1990 Lease provides in relevant part that

LESSEE shall have the option to purchase (the “Purchase
Option”) the Premises (including, without limitation, improvements
located thereon) at any time during the original term or any validly
exercised renewal or option period of this Lease . . . . In no event shall
the Purchase Option survive the expiration or termination of this
Lease. . . . The purchase price for the Premises upon the exercise of the
LESSEE’S Purchase Option shall be the fair market value of the
Premises at closing as determined by an appraiser selected by LESSEE
and reasonably satisfactory to LESSOR. Any cost of such appraisal
shall be borne by LESSEE. If LESSOR does not accept such appraisal,
then LESSOR shall select an appraiser and the purchase price shall be
determined by agreement between the two appraisers. Any cost of such
second appraiser shall be borne by LESSOR. If the appraisers cannot
agree, the appraisers shall select a third appraiser, and the average of
the three appraisals shall conclusively determine the purchase price.
The cost for the third appraiser shall be borne fifty percent (50%) by
LESSEE and fifty percent (50%) by LESSOR. All appraisers shall be
MAI appraisers. . . .

. . . In order to exercise the Purchase Option, LESSEE shall give
ninety (90) days written notice (the “Option Notice”) to LESSOR of its
desire to exercise the Purchase Option. The Option Notice shall
designate a time, date and place for the closing of such purchase and
sale and a date for examination of title. The date for closing such
transaction shall, except as provided below, in no event be later than
ninety (90) days after the date of the Option Notice . . . . The Option
Notice shall be sent by the method provided for notices in this Lease.
The Option Notice so sent shall be considered given or made on the date
of receipt.

(Joint Ex. 17, at 35, 37–39.)

78. SCI was aware that, even if its interpretation of the lease term

prevailed, the 1990 Lease would terminate on December 31, 2015.

79. SCI’s established business practices require a multi-month process

before final approval is granted to execute a lease purchase option.

80. SCI was required to provide Plaintiff notice of its intent to exercise the

Purchase Option on or before October 2, 2015, and thereafter proceed with the

express terms of the Purchase Option.

81. The Purchase Option specified how the purchase price would be

established by an appraisal process.

82. SCI was well aware that appraisal reports from as many as three MAI

appraisers may be required to establish a purchase price.
83. SCI is experienced in securing appraisal reports. SCI was aware that

any one appraisal report may require a minimum of thirty days after the appraiser

is retained.

84. SCI provided notice of its intent to exercise the Purchase Option by

letter dated September 25, 2015 (“Notice Letter”). (Joint Ex. 100, at 1.) Plaintiff

acknowledged receipt of the Notice Letter on September 26, 2015. (Joint Ex. 123.)

The closing period, defined as ninety days after Plaintiff received the Notice Letter

(“Closing Period”), expired on December 24, 2015.

85. The Notice Letter designated that the closing would occur at 11:00 a.m.

on December 14, 2015, at the law offices of SCI’s counsel. (Joint Ex. 100, at 1.)

86. Ms. Johnson was responsible for completing the internal steps necessary

to secure approval from SCI’s management to complete a purchase pursuant to the

Purchase Option. Sometime during September 2015, Ms. Johnson identified John

Bosworth of Valbridge Property Advisors as a potential MAI appraiser. (Revised

Joint Proposed Final Pretrial Order (“Stipulations”) ¶¶ (1)(D)(25)–(26).) Mr.

Bosworth advised Ms. Johnson that he could deliver an appraisal report within thirty

days of being retained. (Stipulations ¶ (1)(D)(26).)

87. When SCI sent Plaintiff the Notice Letter, Ms. Johnson had not yet

received authority to retain Mr. Bosworth. The Notice Letter did not specify SCI’s

appraiser or ask Plaintiff to approve such appraiser.

88. On September 26, 2015, Plaintiff’s counsel John Martin, without having

first consulted with Plaintiff’s members, advised SCI’s counsel—Glenn Ketner and
Anthony Lathrop—that “since the validity/enforceability of the purchase option will

be determined in the pending litigation, we will need to either agree to stay the

exercise or have the court address the issue. Please let me know your position.” (Joint

Ex. 123.)

89. Plaintiff and SCI never thereafter reached an agreement to stay or toll

the exercise of the Purchase Option or the appraisal process required by the Purchase

Option.

90. On or about October 1, 2015, Plaintiff’s members met and advised Mr.

Martin that they wished to adhere to the time requirements for the appraisal process

as defined by the Purchase Option. Mr. Martin invited further discussion with SCI’s

counsel on October 2, 2015. (Joint Ex. 125.)

91. On October 14, 2015, Mr. Martin advised SCI’s counsel that “the

members [of Plaintiff] want to proceed with and complete the appraisal process

within the 90 day period since the established purchase price might be acceptable to

them. If it is acceptable, then they will want to close within the 90 days.” (Joint Ex.

103.) This letter did not unequivocally reject any right SCI would have to compel a

purchase at a price established in accordance with the Purchase Option appraisal

process.

92. On October 20, 2015, Mr. Martin wrote Mr. Lathrop reiterating

Plaintiff’s insistence that the appraisal process be completed within the Closing

Period, and further stating that “[Plaintiff] understand[s] that an actual closing may

not be held until the Court has ruled on the pending issues, but a ‘dry’ closing should
be conducted with both the sales proceeds and the Deed being placed in escrow.”

(Joint Ex. 131.) The Court interprets the reference to a “dry closing” to mean that a

purchase price would be determined in accordance with the Purchase Option

appraisal process and a contingent closing would occur where a deed and the

purchase money would be delivered but held in escrow pending the Court’s

determination of the disputed lease expiration date. If the Court were to determine

that the 1990 Lease expired on December 31, 2015, the closing would become final,

but if the Court were to conclude that the 1990 Lease expired on December 31, 2014,

thereby extinguishing the Purchase Option, the deed and purchase money would be

returned.

93. SCI could not tender a binding purchase price without first determining

the purchase price in accordance with the Purchase Option appraisal process.

94. On November 2, 2015, SCI, for the first time, advised Mr. Bosworth that

it intended to engage him and proceed with an appraisal. (Stipulations ¶ (1)(D)(27).)

95. On November 10, 2015, SCI formally proposed to Plaintiff that the

ninety-day Closing Period be extended. Plaintiff rejected the proposal that same day.

(Joint Ex. 104.)

96. SCI then proposed Mr. Bosworth as its appraiser and requested

Plaintiff’s approval as required by the Purchase Option. Plaintiff approved Mr.

Bosworth on November 13, 2015. (Joint Ex. 105.)

97. On November 17, 2015, SCI formally retained Mr. Bosworth to complete

an appraisal. (Joint Ex. 132.) SCI could not reasonably expect Mr. Bosworth’s
appraisal report prior to December 17, 2015, which would be three days after the

closing date set in SCI’s Notice Letter and only one week before the Closing Period

expired.

98. Mr. Bosworth delivered an appraisal report to SCI on December 17,

2015. (Joint Ex. 135.) The appraisal valued the Property at $2,200,000. (Joint Ex.

135, at iii.) SCI provided the report to Plaintiff on December 18, 2015. (Joint Ex.

106.) That same day, Plaintiff delivered Mr. Bosworth’s appraisal report to Fitzhugh

Stout of Integra Realty Resources, Inc., who Plaintiff had engaged to serve as its

appraiser. (Joint Ex. 107.) Mr. Stout, on January 12, 2014, had provided Plaintiff an

appraisal report valuing the Property at $3,560,000. (Joint Ex. 120, at 2.)

99. SCI’s delivery of its appraisal to Plaintiff on December 18, 2015,

precluded time to secure a third appraisal contemplated by the Purchase Option

appraisal process. Therefore, the only way a purchase price could be established

before December 31, 2015, was for Mr. Bosworth and Mr. Stout to agree on a purchase

price.

100. Mr. Stout testified that the differences in both the final appraised values

and valuation methodologies between his and Mr. Bosworth’s reports were too great

to expect any chance at reaching an agreed valuation. Accordingly, a third appraisal

would be required to determine a final purchase price.

101. There was not adequate time to secure a report from a third appraiser

before the 1990 Lease expired on December 31, 2015, particularly considering the

holiday period.
102. No third appraiser was selected before December 31, 2015. No report

from a third appraiser could reasonably have been expected prior to December 31,

2015.

103. SCI could have timely established a purchase price pursuant to the

appraisal process had it proceeded with due speed.

104. SCI did not, prior to December 31, 2015, request or secure a

court-imposed tolling period or a stay of the Purchase Option time requirements.

IV. CONCLUSIONS OF LAW

105. Based on the foregoing Findings of Fact, the Court makes the following

Conclusions of Law.

106. The Court has jurisdiction over the parties and the subject matter of this

action.

107. The case was properly designated as a mandatory complex business case

and assigned to the undersigned, who has authority to make Findings of Fact

following the completion of the trial and the submission of all disputed issues for

resolution by the Court without a jury.

108. Any Findings of Fact that are more appropriately deemed Conclusions

of Law are incorporated by reference as the Court’s Conclusions of Law.

109. There is a legitimate controversy, making declaratory relief appropriate

as to the proper interpretation of the 1990 Lease, including its initial and renewal

term provisions and the enforceability of its Purchase Option. See Augur v. Augur,
356 N.C. 582, 588, 573 S.E.2d 125, 130 (2002). The Court’s declaration is necessary

to settle the legal rights of the parties to the 1990 Lease.

110. In order to secure reformation, Plaintiff bears a heightened burden of

proof. Dorsey v. Dorsey, 306 N.C. 545, 547, 293 S.E.2d 777, 779 (1982). To establish

that reformation is proper, Plaintiff must prove “by clear, strong, and convincing

evidence,” id., “that a material stipulation, as alleged, was agreed upon by the parties”

and “that such stipulation was omitted from [the lease] as written, by mistake, either

of both parties . . . or by the mistake of the dra[f]tsman,” Branch Banking & Tr. Co.

v. Chi. Title Ins. Co., 214 N.C. App. 459, 464, 714 S.E.2d 514, 518 (2011) (quoting

Matthews v. Shamrock Van Lines, Inc., 264 N.C. 722, 725, 142 S.E.2d 665, 668

(1965)).

111. Plaintiff has not satisfied its burden and is not entitled to reform the

1990 Lease.

112. The greater weight of the evidence supports that the parties intended to

be bound by each of the lease terms, both initial and renewal, as defined by the

specific calendar dates stated.

113. The greater weight of the evidence shows that the parties intended and

understood that the final termination date of the 1990 Lease would be December 31,

2015.

114. Therefore, the 1990 Lease should be construed and enforced as

providing an initial term of January 1, 1990, to December 31, 1995, followed by four
five-year renewal terms, which began on January 1, 1996; January 1, 2001; January

1, 2006; and January 1, 2011, with a final expiration date of December 31, 2015.

115. This conclusion does not depend upon the parties’ course of performance.

However, the parties’ course of performance under the 1990 Lease is consistent with

this construction. See Patterson v. Taylor, 140 N.C. App. 91, 97, 535 S.E.2d 374, 378

(2000) (“[A] trial court seeking to determine the intent of the parties at the time a

voluntary agreement was signed may also consider extrinsic evidence of the conduct

of the parties as they carry out the agreement. Indeed, because actions speak louder

than words, such evidence may be particularly persuasive. . . .”).

116. Because the Court concludes that the 1990 Lease expired on December

31, 2015, it need not further consider SCI’s equitable defenses. If the Court were

required to consider such defenses, it would conclude that SCI has failed to sustain

its burden of proving these defenses. E.g., Wells Fargo Bank, N.A. v. Coleman, 239

N.C. App. 239, 247, 768 S.E.2d 604, 610 (“Laches is an affirmative defense which

must be pleaded, and the burden of proof is on the party asserting the defense.”), disc.

rev. denied, ___ N.C. ___, 775 S.E.2d 871 (2015).

117. SCI did not plead, and is not now entitled to rely on, a defense based on

a statute of limitations or statute of repose. See Overton v. Overton, 259 N.C. 31, 35,

129 S.E.2d 593, 597 (1963) (“[T]he [statute] of limitation must be affirmatively

pleaded in order to be available as a defense.”). In any event, there is no statute of

repose that would apply to Plaintiff’s action.
118. Plaintiff’s October 6, 2014 letter, stating its position that the 1990 Lease

would terminate on December 31, 2014, was not a final repudiation of SCI’s rights

under the Purchase Option so as to excuse SCI’s performance in accordance with the

terms of the Purchase Option. See, e.g., Lagies v. Myers, 142 N.C. App. 239, 253, 542

S.E.2d 336, 345 (2001) (concluding “that defendant never expressed a refusal to honor

the [purchase option] agreement and therefore, plaintiff was not excused from

tendering the purchase in order to exercise the option”).

119. Plaintiff did not waive, and should not be estopped from asserting, its

right to insist that SCI establish a purchase price in strict compliance with the stated

terms of the Purchase Option. SCI cannot reasonably contend that its delay in

establishing a purchase price was expressly or impliedly induced by Plaintiff.

120. Plaintiff is not estopped from claiming that the Purchase Option expired

on December 31, 2015, because it had earlier contended that it expired on December

31, 2014. Plaintiff was entitled to proceed on two alternative claims: (1) that the 1990

Lease had terminated on December 31, 2014, thereby extinguishing the Purchase

Option, and (2) that if the 1990 Lease did not terminate until December 31, 2015, the

Purchase Option had still expired because of SCI’s failure to perform.

121. A purchase option is “construed strictly in favor of the optionor.”

Sheppard v. Andrews, 7 N.C. App. 517, 520, 173 S.E.2d 67, 69 (1970). “[A]bsent

special circumstances, time is of the essence in an option to purchase land and that

acceptance and tender must be made within time required by the option.” Eward v.

Kalnen, 14 N.C. App. 619, 623, 188 S.E.2d 742, 745 (1972). A purchase option “must
be exercised strictly as specified by the option agreement.” Lagies, 142 N.C. App. at

250, 542 S.E.2d at 343; see, e.g., Miller v. Russell, 217 N.C. App. 431, 438, 720 S.E.2d

760, 766 (2011) (explaining that the plaintiffs were not entitled to specific

performance of the purchase option because they “did not exercise the option

according to its terms before the option expired”).

122. SCI “has the burden of demonstrating that [it] exercised the option in

accordance with the option’s terms.” Lagies, 142 N.C. App. at 248–49, 542 S.E.2d at

342 (citing Parks v. Jacobs, 259 N.C. 129, 130, 129 S.E.2d 884, 885 (1963)).

123. The 1990 Lease provided that the Purchase Option would not survive

the expiration of the lease, and SCI has demonstrated no legal basis to preclude

application of that provision. (Joint Ex. 17, at 35.)

124. SCI was required to, but did not, establish a purchase price by December

31, 2015, as provided by the appraisal process specified in the Purchase Option.

125. SCI was not excused from its obligation to establish a purchase price

prior to December 31, 2015.

126. SCI did not comply with the closing conditions set by its own Notice

Letter.

127. SCI had not, by December 31, 2015, satisfied all conditions precedent to

its right to complete a purchase pursuant to the Purchase Option.

128. The Purchase Option expired on December 31, 2015.

129. SCI waived its right to complete a purchase of the Property.
130. In seeking a declaration that it now has a right to complete a purchase

pursuant to the Purchase Option, SCI effectively seeks a decree of specific

performance. In order to obtain such a decree, SCI must establish that it “has done,

or offered to do, or is then ready and willing to do, all the essential and material acts

required of [it] by the agreement at the time of commencing the suit.” Carr v. Good

Shepherd Home, Inc., 269 N.C. 241, 244, 152 S.E.2d 85, 88 (1967) (quoting Hudson v.

Cozart, 179 N.C. 247, 252, 102 S.E. 278, 281 (1920)); see, e.g., Lagies, 142 N.C. App.

at 250, 253, 542 S.E.2d at 343, 345 (concluding that even though “several issues

remained unsettled at the time the option was to expire,” the plaintiff was not entitled

to specific performance, because he failed to “exercise the option as specified by the

agreement”). Having failed to establish a purchase price in the manner required by

the Purchase Option, SCI cannot now require Plaintiff to execute the Purchase

Option.

131. SCI is not entitled to any decree that Plaintiff must now specifically

close a purchase of the Property.

132. Plaintiff was not legally required to advise SCI prior to October 6, 2014,

that it contended that the 1990 Lease would expire on December 31, 2014.

133. SCI has failed to prove that Plaintiff breached any duty of good faith or

any implied covenant of good faith.

134. SCI has failed to prove that it suffered damages or that it is entitled to

recover damages from Plaintiff.
135. SCI has demonstrated no factual or legal basis that would excuse it from

paying double rent beginning on January 1, 2016, as provided by the 1990 Lease.

136. Plaintiff has satisfied its burden of proving that SCI became a holdover

tenant on January 1, 2016.

137. Plaintiff is entitled to receive, and SCI is obligated to pay, holdover rent

pursuant to the terms of the 1990 Lease for the period beginning on January 1, 2016,

and ending on the date that SCI surrenders possession of the Property to Plaintiff,

together with interest on that sum at the legal rate.

138. Plaintiff is entitled to the remedy of ejectment. Plaintiff is entitled to

possession of the Property, and SCI is obligated to surrender possession of the

Property.

139. Each party, having prevailed on one or more of its claims, shall bear its

own costs.

V. CONCLUSION

140. Based on the foregoing Findings of Fact and Conclusions of Law, it is

HEREBY ORDERED, ADJUDGED, AND DECREED THAT:

1. The Court declares that the 1990 Lease must be interpreted and

enforced as having an initial lease term beginning on January 1,

1990, and ending on December 31, 1995, followed by four

automatic five-year renewal terms, commencing on January 1,

1996; January 1, 2001; January 1, 2006; and January 1, 2011;

with a final lease expiration date of December 31, 2015.
2. SCI remained a lawful tenant until December 31, 2015, and

Plaintiff is not entitled to recover double rent for the period of

January 1, 2015, to December 31, 2015.

3. The Court declares and adjudges that SCI was entitled to exercise

the Purchase Option contained in the 1990 Lease, as long as SCI

provided notice of its intent to do so on or before October 2, 2015,

and thereafter satisfied its performance requirements before the

lease expired, specifically including the obligation to establish a

purchase price as defined by the appraisal process, but SCI failed

to do so without excuse, and the Purchase Option expired on

December 31, 2015.

4. Plaintiff is entitled to recover, and SCI is obligated to pay,

holdover rent as calculated pursuant to the terms of the 1990

Lease for the period beginning on January 1, 2016, and ending on

the date that SCI surrenders possession to Plaintiff, together with

interest at the legal rate.

5. SCI shall surrender possession of the Property to Plaintiff.

6. SCI shall recover no damages from Plaintiff.

7. Each party shall bear its own costs.
Having resolved all claims and counterclaims, this Opinion and Final

Judgment constitutes the Court’s final judgment.

This the 30th day of March, 2017.

/s/ James L. Gale
James L. Gale
Chief Business Court Judge