IN THE SUPREME COURT OF MISSISSIPPI 2014-CA BRIEF OF APPELLANT GORDON KLEYLE ORAL ARGUMENT NOT REQUESTED

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1 E-Filed Document Jun :15: CA Pages: 13 IN THE SUPREME COURT OF MISSISSIPPI 2014-CA GORDON KLEYLE APPELLANT/PLAINTIFF vs. MYRNA DEOGRACIAS & PHILIP DEOGRACIAS, Individually and/or d/b/a THE RAILROAD CAFE' APPELLEES/DEFENDANTS APPELLEEsmEFENDANTS BRIEF OF APPELLANT GORDON KLEYLE ORAL ARGUMENT NOT REQUESTED APPEAL FROM THE CHANCERY COURT OF PEARL RIVER COUNTY, MISSISSIPPI BRIAN R. BLEDSOE, ESQ. (MSB ) MONT AGUE, PITTMAN & VARNADO, ADO, P.A. POST OFFICE DRAWER 1975 HATTIESBURG, MS Telephone: (601) Facsimile: (601)

2 IN THE SUPREME COURT OF MISSISSIPPI COURT OF APPEALS OF THE STATE OF MISSISSIPPI 2014-CA GORDON KLEYLE APPELLANT/PLAINTIFF vs. MYRNA DEOGRACIAS & PHILIP DEOGRACIAS, Individually and/or d/b/a THE RAILROAD CAFE' APPELLEES/DEFENDANTS CERTIFICATE OF INTERESTED PERSONS The undersigned counsel of record certifies that the following list of persons have an interest in the outcome of this case. These representations are made in order that the Justice of the Supreme Court and/or the Judges of the Court of Appeals may evaluate possible disqualification or recusal: 1. Gordon Kleyle, 196 Tee Road, Lumberton, MS Appellant/Plaintiff; 2. Myrna Deogracias, Appellee/Defendant; 3. Philip Deogracias, Appellee/Defendant; 4. Brian R. Bledsoe, Esq., Montague, Pittman & Varnado, P.A., Post Office Drawer 1975, Hattiesburg, MS , Attorney for Appellant/Plaintiff; 5. F. Douglas Montague, Esq., Montague, Pittman & Varnado, P.A., Post Office Drawer 1975, Hattiesburg, MS , Attorney for Appellant/Plaintiff; 6. Richard Fitzpatrick, Esq. P.O. Box 546, Poplarville, MS 39470, Attorney for Appellees/Defendants; 7. T. Jackson Lyons, Esq. Lyons Law firm, P.O. Box 4690, Jackson, MS , Attorney for Appellees/Defendants; and

3 8. Honorable Prentiss G. Harrell, Circuit Court Judge, Pearl River County, Post Office Box 488, Purvis, MS 39475, Trial Court Judge Respectfully submitted, this the 16th day of June, MONTAGUE, PITTMAN & VARNADO, P.A. POST OFFICE DRAWER 1975 HATTIESBURG, MS Telephone: (601) Facsimile: (601)

4 TABLE OF CONTENTS TITLE PAGE CERTIFICATE OF INTERESTED PERSONS...i TABLE OF CONTENTS...iii TABLE OF AUTHORITIES...iv STATEMENT OF THE ISSUE... 1 STATEMENT OF THE CASE... 1 SUMMARY OF THE ARGUMENT... 5 ARGUMENT... 5 CONCLUSION... 7 CERTIFICATE OF SERVICE

5 TABLE OF AUTHORITIES AUTHORITIES PAGE(S) CASES Adams v. Greenpoint Credit, LLC, 943 So. 2d 703 (Miss. 2006)... 5 Delta Const. Co. of Jackson v. City of Jackson, 198 So. 2d 592 (Miss. 1967)... 6 Handleman v. Pickerill, 257 P. 890 (Cal. App. 1927)... 7 Mark-It Place Foods, Inc. v. New Plan Excel Realty Trust, 804 N.E.2d 979 (Ohio App. 2004)... 7 Summit Foods, Inc. v. Greyhound Food Mgt., Inc., 752 F. Supp. 363 (D. Colo. 1990)... 6 Tenet Health Systems Hospitals Dallas, Inc. v. North Texas Hospital Physicians Group, P.A., 438 S.W.3d 190 (Tex. App. 2014)... 6 Weeks v. Cal-Maine Foods, Inc., 522 So. 2d 725 (Miss. 1987)... 7 REFERENCES 17AAm. Jur. 2d Contracts 416 (May2015) Am. Jur. 2d Landlord and Tenant 999 (May 2015) C.J.S. Landlord & Tenant 62 (May 2015)... 6 IV

6 STATEMENT OF THE ISSUE Whether one who is neither a party to a contract nor an intended third party beneficiary has standing to enforce the contract's terms or invoke its provisions for his or her benefit. STATEMENT OF THE CASE I. Course of Proceedings and Disposition Below. In the Circuit Court of Pearl River County, Honorable Judge Prentiss Harrell erroneously held that one who is a complete stranger to a contract, and is not an intended third party beneficiary, has standing to enforce the terms of that contract. Judge Harrell's ruling contradicts well-established tenets of contract law which prohibit those who are neither parties nor intended third party beneficiaries from interfering with an agreement in which they have no interest. Appellant Gordon Kleyle ("Kleyle") respectfully submits that the trial court failed to adhere to these fundamental rules of contract law when it granted the motion to dismiss filed by Myrna Deogracias and Philip Deogracias (collectively, "the Deograciases"). On May 18, 2011, Kley le filed suit against the Deograciases in the Circuit Court of Pearl River County, Mississippi for breaching a Lease Agreement dated February 9, 2008 between the parties which called for the Deograciases to rent a building from Kleyle from February 2008 to February of 2010 for the purpose of operating a restaurant called The Railroad Cafe. (R. at 6-15). The Defenses and Answer to the Complaint filed by the Deograciaces asserted, among other things, that the Lease Agreement had not actually been signed by the Deograciases, that Defendant "The Railroad Cafe, LLC" had not been properly served, and that the Deograciases 1

7 had sold The Railroad Cafe, LLC to a third person who operated the cafe (and paid Kleyle rent) from November 2008 through June (R. at 16-23). The Deograciases subsequently filed a motion to dismiss, contending that the parties to the Lease Agreement were The Railroad Cafe, LLC and Kleyle, and that they were not, therefore, personally liable under the Lease Agreement. (R. at 25-26). Kleyle responded by showing that the Deograciases had paid Kleyle with a personal check for the February 2008 rent, and had not formed The Railroad Cafe, LLC until January 22, (R. at ). The trial court denied the Deograciases' motion. (R. at 32). Eventually, the Deograciases filed a "Supplemental and Amended Defenses and Answer to the Complaint Adding The Alabama Great Southern Railroad Company as a Party" (the "Supplemental Answer", R. at 81 - I 05). The Deograciases asserted that The Alabama Great Southern Railroad Company ("AGS") should be added as a party because, in May 2004, AGS and Kleyle had entered into a lease for the real property upon which Kleyle's building (the "Building") was situated. The AGS-Kleyle Lease required that Kleyle obtain prior written consent from AGS before subleasing the property. In the Second Defense to their Supplemental Answer, the Deograciases asserted that their Lease Agreement with Kleyle constituted a "sublease," and that Kleyle had failed to obtain written permission from AGS to sublet the property to them. Therefore, the Deograciases maintained, the Lease Agreement they entered into with Kleyle was void because the AGS-Kleyle Lease provided, "Any assignment or sublease made in violation of this Paragraph 12 shall be void and shall constitute a default hereunder." (Supplemental Answer, Second Defense, R. at 81-82, and Exhibit "A" thereto, R. at 92). 2

8 On August 25, 2014, the Deograciases filed another motion to dismiss. (R. at ). The Deograciases' second motion was based on their assertion that, because the AGS-Kleyle Lease (to which the Deograciases were not parties) purported to declare any sublease "void", the Lease Agreement (to which they were parties) must, too, be void. (Id.). Kleyle responded to the Motion by pointing out that the Deograciases were total strangers to the AGS-Kleyle Lease and were not intended third party beneficiaries, and that they therefore had no right to enforce any of the provisions in the A GS-Kley le Lease. (R. at ). Nevertheless, the trial court granted the Deograciases' motion and dismissed Kleyle's case. (R. at 210). Kleyle filed a motion for reconsideration, noting that the representative of AGS who filed an Affidavit in the case did not state that the AGS-Kleyle lease had been rendered void by the Lease Agreement with the Deograciases, but only, "In general, AGS does not recognize subleases, transfers and/or assignments of leases entered into by tenants who did not obtain prior written permission from AGS to do so." (R. at ). The trial court denied Kleyle's motion, and in doing so committed reversible error. (R. at 226). It is from this Order that Kleyle appeals. 2. Statement of the Facts. On May 1, 2004, Kleyle entered into the AGS-Kleyle Lease, whereby Kleyle leased from AGS approximately 27,200 square feet of real property located at 203 E. Magnolia Street in Poplarville, Mississippi. (R. at 87-97). The AGS-Kleyle Lease gave Kleyle the right to maintain the Building ( which he owned) and other improvements upon the leased real property. (R. at 88). The AGS-Kleyle Lease contains two sentences which eventually became the focal 3

9 point of the entire case, and upon which the trial court, in error, relied as the basis to dismiss Kleyle's complaint: [Kleyle] may not assign this Lease or any interest thereunder or sublet the Premises in whole or in part or allow all or a portion of the Premises to be used by a third party without the prior written consent of [ AGS].... Any assignment or sublease made in violation of this Paragraph 12 shall be void and shall constitute a default hereunder. (R. at 91-92). Over three (3) years later, on December 22, 2007, Kleyle and the Deograciases entered into an oral lease agreement whereby the Deograciases rented the Building from Kleyle for the purpose of operating a restaurant called the Railroad Cafe. (R. at 2). The Deograciases took possession of and caused electricity to be connected to the Building on December 22, (R. at 2, 3). A month after they took possession of the Building, on January 22, 2008, the Deograciases created "The Railroad Cafe, LLC" to operate the cafe. (R. at 2). On February 9, 2008, the Deograciases reduced their verbal agreement with Kleyle to a written Lease Agreement in which the Deograciases rented the Building from Kleyle for a twoyear term, from February 2008 to February of 2010, for $1, per month (the "Lease Agreement", R. at 12-15). The Lease Agreement was personally and individually signed by Myrna Deogracias and Philip Deogracias, and the Deograciases paid Kleyle with a personal check for the February 2008 rent. (R. at 15, 31). Under the Lease Agreement, the Deograciases could cancel the lease at any time by providing Kleyle with 90 days' written notice. (R. at 18). However, the Deograciases never gave Kleyle such written notice, and only gave Kleyle verbal notice that they were vacating the 4

10 Building on June 23, (R. at 3). On May 18, 2011, Kleyle filed the instant action against the Deograciases in the Circuit Court of Pearl River County, Mississippi, Honorable Prentiss Harrell presiding, for unpaid rent plus the cost of repairs to equipment and appliances, both of which the Deograciases were liable for under the terms of the Lease Agreement. (R. at 1-15). SUMMARY OF THE ARGUMENT The Deograciases lack standing to invoke for their benefit a provision in the AGS-Kleyle Lease to which they were neither parties nor intended third party beneficiaries. The Deograciases' rights and obligations are contained in the Lease Agreement they entered into with Kleyle. No privity of contract exists between the Deograciases and AGS, and they have no right to enforce any of the terms and conditions in the AGS-Kleyle Lease. Therefore, the Deograciases carmot enforce the provision in the AGS-Kleyle Lease which purports to declare any sublease of the subject premises "void". The trial court erred by allowing the Deograciases to step into the shoes of a party to the A GS-Kley le Lease. ARGUMENT One who is neither a party nor an intended third party beneficiary to a contract carmot enforce the contract's terms. Adams v. Greenpoint Credit, LLC, 943 So. 2d 703, 708 (Miss. 2006). This has been the rule in Mississippi and throughout the United States for many years, and the reason for the rule is that privily of contract or intended third party beneficiary status is necessary to enforce a contract. See 17 A Am. Jur. 2d Contracts 416 (May 2015). Otherwise, "there would be no bounds to actions if the ill-effect of the failure ofa party to a contract to 5

11 perform his agreement could be followed down the chain of results to the final effect." Delta Const. Co. of Jackson v. City of Jackson, 198 So. 2d 592, 597 (Miss. 1967). It has long been widely-established that a sublessee lacks standing to enforce the provisions of the original lease between the lessor and lessee. "Because of the lack of privity, the sublessee does not acquire, merely as a result of the sublease, any right to enforce the covenant or agreements of the lessor contained in the original lease." 49 Am. Jur. 2d Landlord and Tenant 999 (May 2015). For instance, in Tenet Health Systems Hospitals Dallas, Inc. v. North Texas Hospital Physicians Group, P.A., 438 S.W.3d 190 (Tex. App. 2014), despite the provision in the original lease agreement between the lessor and lessee prohibiting "any transfer" without the lessor's consent, the lessee sublet the premises to the subtenant. Id. at The subtenant argued that its sublease was unenforceable, and that the absence of such consent rendered the sublease void. Id. at 198. The Texas Court of Appeals rejected this assertion, holding: It is well-established, however, that [the prohibition against subleasing without a landlord's consent] is for the benefit of the landlord.... The effect of a subleasing of a leased premises, without the consent of the lessor, is to give to the lessor the right to forfeit the lease. It does not have the effect of nullifying the lease ipso facto... Because any objection to a sublease belongs to the landlord, courts have rejected sublessees' attempts to invoke this prohibition to their advantage... [The sublesseej cannot enter into the [sjublease, enjoy occupancy of the premises, and then complain that the [sjublease is unenforceable. The fact that the landlord did not consent to the [ s ]ublease is of no consequence to our inquiry here. Tenet Health Systems, 438 S.W.3d at 198 (emphasis added); see 52 C.J.S. Landlord & Tenant 62 (sublessee cannot enforce covenant in original lease); Summit Foods, Inc. v. Greyhound Food Mgt., Inc., 752 F. Supp. 363, 365 (D. Colo. 1990) (holding that sublessee was not party to master 6

12 lease and therefore lacked standing to enforce terms of master lease); Mark-It Place Foods, Inc. v. New Plan Excel Realty Trust, 804 N.E.2d 979 (Ohio App. 2004) (subtenant was not third party beneficiary of original lease and therefore could not enforce its provisions); Handleman v. Pickerill, 257 P. 890, 892 (Cal. App. 1927) (same). As Kleyle's sublessee, the Deograciases could enforce only the terms of their Lease Agreement with Kley le, not the provisions of the AGS-Kleyle Lease. See Weeks v. Cal-Maine Foods, Inc., 522 So. 2d 725, 730 (Miss. 1987). As non-signatory, non-third-party beneficiaries to the AGS-Kleyle Lease, the Deograciases were strangers to that contract and had no right to avail themselves to its terms. Adams, 943 So. 2d at 709. CONCLUSION Honorable Circuit Judge Prentiss Harrell committed reversible error by allowing the Deograciases to declare their own Lease Agreement void based upon the provisions in the AGS- Kleyle Lease, and Kleyle respectfully requests that this Court reverse the trial court's ruling. Dated: June 16, Respectfully Submitted, MONTAGUE, PITTMAN & VARNADO, P.A. POST OFFICE DRAWER 1975 HATTIESBURG, MS Telephone: (601) Facsimile: (601) Brian R. Bledsoe, (MSB # ) Attorney for Appel/ant/Plaintiff 7

13 CERTIFICATE OF SERVICE I, Brian R. Bledsoe, certify that I have this date mailed by United States Mail, postage prepaid, a true and correct copy of the above and foregoing Brief of Appellant Gordon Kleyle to the following: Richard C. Fitzpatrick, Esq. P. 0. Box 546 Poplarville, MS T. Jackson Lyons, Esq. Lyons Law firm P.O. Box 4690 Jackson, MS Honorable Prentiss G. Harrell Pearl River County Circuit Court Judge P. 0. Box488 Purvis, MS Trial Court Judge This the J1_ day of June, BRIAN R. BLEDSOE MONTAGUE, PITTMAN & VARNADO, P.A. POST OFFICE DRAWER 1975 HATTIESBURG, MS Telephone: (601) Facsimile: (601) bbledsoe@mpvlaw.com 8

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