Town of Roseland v. Karts International, Inc.

Full title: TOWN OF ROSELAND VERSUS KARTS INTERNATIONAL, INC. AND FUN KARTS, INC

Court: United States District Court, E.D. Louisiana

Date published: Feb 9, 2004

CIVIL ACTION NO. 03-1433, SECTION "K"(3) (E.D. La. Feb. 9, 2004)

Opinion

CIVIL ACTION NO. 03-1433, SECTION "K"(3)

February 9, 2004

STANWOOD DUVAL, District Judge

Before the Court is Fun Karts, Inc. Motion for Partial Summary Judgment (Doc. 11). Having review the pleading, memoranda and the relevant law, the Court finds that the motion has merit.

The Town of Roseland entered into a lease agreement with Karts International, Inc. which was confectcd on May 16, 2000. The lease was subsequently amended on October 4. 2000. This amendment was apparently necessitated by virtue of the Town of Roseland being unable to obtain a loan of $150,000 to make the necessary improvements to the property which was part of the consideration for the lease. Under the terms of the amendment Karts International, Inc. was to pay $200,000 in "Consideration." Amendment to Lease of Commercial Property (Doc. 13, Exh.2). That consideration was acknowledged and confirmed by both the Town of Roseland and Karts International, Inc. as "constituting payment in full of the amount of monthly net rental that would otherwise become due over both the primary term of the lease commencing October 1, 2000 and ending September 30, 2007 and the option term commencing October 1, 2007 and ending September 30, 2009, as set forth in the Lease Agreement." Id. Payment was made by Karts International. Inc. in full as set forth in the amendment.

Fun Karts, Inc. acquired a majority of the assets of Karts International, Inc. at a Sheriffs sale on July 17, 2002. Karts International voluntarily assigned its lease with the Town of Roseland to Fun Karts on October 16, 2002.

On May 2, 2003, a Rule to Evict Tenant was filed in the Twenty-First Judicial District Court for the Parish of Tangipahoa based on Karts International, Inc.'s alleged violation of Section 7 of the lease by virtue of a seizure of assets and subsequent assignment thereof from Karts International, Inc. to Fun Karts, Inc.¹

1 A revocatory action was filed against the two Kart entities, on October 8, 2003, based on two judgments against Karts International, Inc. in excess of $200,000.00 which were entered November 12th 2002 and February 4, 2003. These creditors claim that the transfer of the lease from Karts International to Fun Karts, Inc. without consideration was a transfer one of the only assets of Karts International.

Fun Karts, Inc. has moved the Court for a determination of whether it is due a refund of prepaid rental payments if it is evicted from plaintiff's premises. The law is clear in this regard. As stated by the Louisiana Court of Appeal for the Third Circuit in Bill Kassel Farms, Inc. v. Paul, 690 So.2d 807 (La.App. 3rd Cir. 1997) citing Sunbelt Security Services, Inc. v. Delahoussaye, 572 So.2d 598 (La.App. 4th Cir 1990), citing Richard v. Broussard, 495 So.2d 1291 (La. 1986).

Generally, when a lessee defaults on a lease agreement, the lessor has two options available: he may sue to cancel the lease and to recover accrued rentals due, or he may sue to enforce the lease and to recover both accrued rentals and future accelerated rentals (if the lease contains an acceleration clause). The remedies are mutually exclusive. Comment, the Louisiana Law of Leases, 39 Tul. L.Rev. 798, 860 (1965); V. Palmer, Leases, The Law in Louisiana Sec. 5-19 (1982). If the lessor elects to cancel the lease, the lease is terminated and the lessor is entitled to return into possession, but he forfeits the right to all future rentals. On the other hand, if the lessor elects to enforce the lease, he may obtain a money judgment against the lessee based on the terms of the lease agreement, but the lease remains in effect and the lessee retains the right of occupancy for the remainder of the term of the lease.

Bill Kassel Farms, 690 So.2d at 810. Thus, by virtue of the Town of Roseland's choice to terminate the lease, it would have to refund the future rentals after eviction of Fun Karts, Inc. Thus, in principle the motion must be granted and the money should be returned to the lessee. Fun Kart, Inc. the mover subject to proof at trial as to the amount due and any offsets that would be judicially available to the Town of Roseland with respect to its claim for "bad faith." Accordingly,

IT IS ORDERED that the Motion for Partial Summary Judgment (Doc. 11) is GRANTED in principle, that is that Fun Karts, Inc. is entitled to reimbursement for future rentals subject to any off-set proven up at trial.