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Elderberry of Weber City, LLC v. Living Centers-Southeast, Inc.

United States Court of Appeals, Fourth Circuit

July 21, 2015

ELDERBERRY OF WEBER CITY, LLC, a Virginia limited liability company, Plaintiff - Appellee,
LIVING CENTERS - SOUTHEAST, INCORPORATED, a North Carolina corporation; FMSC WEBER CITY OPERATING COMPANY, LLC, a Delaware limited liability company; CONTINIUMCARE OF WEBER CITY, LLC, a Florida limited liability company; MARINER HEALTH CARE, INCORPORATED, a Delaware corporation, Defendants - Appellants

Argued January 28, 2015

Amended: August 10, 2015

Page 407

Appeal from the United States District Court for the Western District of Virginia, at Lynchburg. (6:12-cv-00052-NKM-RSB). Norman K. Moon, Senior District Judge.



James F. Segroves, HOOPER, LUNDY & BOOKMAN, PC, Washington, D.C., for Appellants.

James Strother Crockett, Jr., SPILMAN THOMAS & BATTLE, PLLC, Charleston, West Virginia, for Appellee.


Lori D. Thompson, LECLAIRRYAN, PC, Roanoke, Virginia, for Appellants. Travis A. Knobbe, M. Mallory Mantiply, SPILMAN THOMAS & BATTLE, PLLC, Roanoke, Virginia, for Appellee.

Before MOTZ, GREGORY, and WYNN, Circuit Judges. Judge Gregory wrote the opinion, in which Judge Motz and Judge Wynn joined.


Page 408

GREGORY, Circuit Judge:

Plaintiff-appellee Elderberry of Weber City, LLC (" Elderberry" ) filed this civil action in the Western District of Virginia

Page 409

alleging breach of a lease for a skilled nursing facility against defendants-appellants Living Centers - Southeast, Inc. (" Living Centers" ), FMSC Weber City Operating Company, LLC (" FMSC" ), and ContiniumCare of Weber City (" Continium" ), and breach of a guaranty contract against defendant-appellant Mariner Health Care, Inc. (" Mariner" ). Separately, in the Northern District of Georgia, Mariner filed a declaratory judgment action against Elderberry, seeking a declaration that it had no obligations under the guaranty. The two actions were consolidated in the Western District of Virginia. The district court denied the parties' cross motions for summary judgment but held that the guaranty was enforceable against Mariner. Following a bench trial, the district court entered judgment in favor of Elderberry on all counts, and found the appellants jointly and severally liable for accrued and future damages amounting to $2,742,029.50, plus pre-and post-judgment interest at the rate of 0.13%. Because the district court erred in awarding damages that accrued after the termination of the lease, we vacate in part and remand for the district court to recalculate damages for the appropriate time period.


At the center of this lease and contract dispute is a skilled nursing facility located in Weber City, Virginia. Elderberry leased the facility to Living Centers in November 2000 for a 10-year term. Initially, Living Centers was not permitted to assign the lease without prior written permission from Elderberry. However, in 2006, the lease was amended to allow Living Centers to assign the lease to FMSC or any of its subsidiaries or affiliates without prior approval from Elderberry so long as Living Centers first obtained a guaranty from Mariner.[1] In accordance with the amendment, the lease reset for a new 10-year term commencing at the completion of certain construction and improvements to the facility, and thus a new lease expiration date was set for April 2017. The required guaranty was attached as Exhibit E to the lease amendment, and was signed by then Executive Vice President and Chief Financial Officer of Mariner, Boyd P. Gentry.

On January 18, 2007, Living Centers assigned the lease to FMSC. FMSC, in turn, reassigned it to Continium in November 2011.[2] In the midst of the assignments and amendments, the facility was subject to numerous problems, including being listed as a " Special Focus Facility," [3] nonpayment of utility vendors, and interruptions of gas and phone service.

Continium ceased making rent payments after March 2012. Although Elderberry and Continium thereafter attempted to negotiate rent reductions, Continium indicated in May 2012 that it was no longer able to make rent payments. Elderberry's attempts to locate a new tenant were initially unsuccessful because of, among other problems, the facility's placement on the Special Focus Facility list.

Eventually, Elderberry hired Smith/Packett Med-Com, LLC (" Smith/Packett" ) to locate a new tenant, conduct lease negotiations, and provide

Page 410

asset management services. The two entities signed an August 8, 2012 asset management agreement, under which Elderberry agreed to pay Smith/Packett a $150,000 signing fee for securing a new tenant, a $375,000 value fee on June 1, 2015, so long as the new tenant was not then in default under the new lease, and a monthly management fee of 10% of the new tenant's rent payable.

Subsequent to signing the asset management agreement, on August 15, 2015, Elderberry sent Living Centers, Continium, Mariner, and their attorneys at the Bernstein Law Firm a letter demanding immediate payment of past due rent. The letter indicated that if the payments were not made, Elderberry would " be entitled to proceed with pursuit of its remedies under the Lease, including, but not limited to, seeking damages in court, termination of the Lease, and/or taking possession of the Property." J.A. 201-02. The requested past due rent payments were not made. Rather, on August 17, 2012, Continium discharged the remaining residents and abandoned the facility.

On August 24, 2012, Elderberry mailed the appellants a letter bearing the subject line, " LEASE TERMINATION NOTICE." J.A. 607. The letter stated: " this letter shall serve as notice that the Lease is hereby terminated, effective 12:00 midnight EST on August 24, 2012. [Elderberry] reserves all rights and remedies related to Tenant's default whether under the Lease, at law or in equity." J.A. 607.

Elderberry rehabilitated the nursing facility with Smith/Packett's help and eventually entered into a new lease with Nova Healthcare Group, LLC (" Nova" ) for a new 10-year term beginning January 1, 2013. During the course of lease negotiations, Nova secured from Elderberry a renovation budget and working capital totaling $1.25 million.

One week after Elderberry sent the termination letter to the appellants, Mariner filed suit against Elderberry in the Northern District of Georgia, seeking a declaration that the guaranty was unenforceable. Thereafter, Elderberry filed a breach of lease and breach of contract action against the appellants in the Western District of Virginia. Elderberry sought damages for accrued and future rent, as well as " costs, fees and expenses incurred by Elderberry to preserve and rehabilitate the property; fees and expenses incurred by Elderberry in hiring [Smith/Packett] . . . to locate a replacement tenant; sums expended by ...

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