HDRE Business Partners Ltd. Group, L.L.C. v. RARE Hospitality International, Inc.
2016 U.S. App. LEXIS 15269
| 5th Cir. | 2016Background
- RARE Hospitality sought to develop a LongHorn Steakhouse on property owned by Stirling; HDRE agreed to buy the property from Stirling and lease it to RARE.
- HDRE and Stirling executed a purchase agreement (Aug 2007); HDRE and RARE executed a Lease (Feb 2008) containing a prevailing-party attorneys’ fees clause for suits "arising out of this Lease."
- RARE later negotiated an Assignment (May 2008) by which HDRE assigned its purchase-agreement rights to RARE; the Assignment paid HDRE and did not mention attorneys’ fees or expressly address novation.
- RARE exercised a one-week termination option in the Assignment, refused to perform under the Lease, HDRE sued for breach, and the district court initially found the Assignment novated (extinguished) the Lease but this was reversed on summary judgment by this Court (HDRE I); a jury later found the parties clearly and unequivocally intended novation and the Fifth Circuit affirmed (HDRE II).
- After final judgment for RARE on novation, RARE sought attorneys’ fees under the Lease; the district court awarded $750,000, and HDRE appealed the fee award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a novation extinguished the Lease’s prevailing-party attorneys’ fees clause | RARE: The attorneys’ fees clause survives and applies to this dispute because it broadly covers any action "arising out of this Lease." | HDRE: Novation substituted a new obligation and extinguished the original lease and all its accessories, including the fees clause. | Held: Novation extinguished the Lease and its accessories, so the attorneys’ fees provision did not survive. |
| Whether the Lease evidenced intent to preserve the fees clause against novation | RARE: Lease terms (broad fees clause; severability) show intent that fees remain operative even if some provisions change. | HDRE: Lease does not address novation; severability clause does not limit novation’s scope. | Held: Lease language did not manifest intent to limit novation; severability clause irrelevant to novation’s extinguishing effect. |
| Whether the fees clause was a separable/conjunctive obligation capable of piecemeal survival | RARE: Fees provision could be treated as separate/conjunctive and thus survive substitution of the purchase obligation. | HDRE: The fees right is accessory to the lessor-lessee obligation and not a conjunctive obligation capable of separate survival. | Held: Fees were accessory to the lease obligation, not a separable conjunctive obligation; they were extinguished by novation. |
| Whether denying fees here creates unfair asymmetry or absurd results | RARE: It would be absurd and asymmetrical if the prevailing-party clause became unilateral depending on who proved novation. | HDRE: That result reflects standard risk of asserting novation; no legal absurdity. | Held: No absurdity; losing entitlement to fees when one proves novation is an ordinary consequence. |
Key Cases Cited
- Langhoff Props., LLC v. BP Prods. N. Am. Inc., 519 F.3d 256 (5th Cir. 2008) (explains novation extinguishes the overarching obligation, not just correlative duties)
- Wal-Mart Stores, Inc. v. Qore, Inc., 647 F.3d 237 (5th Cir. 2011) (choice-of-law and applying state law in diversity cases)
- In re Bayhi, 528 F.3d 393 (5th Cir. 2008) (novation extinguishes existing obligations; discussion of accessory rights)
- Covington v. McNeese State Univ., 119 So.3d 343 (La. 2013) (standard of review for attorney-fee awards under Louisiana law)
- Hoffman v. Travelers Indem. Co. of Am., 133 So.3d 993 (La. 2014) (contract interpretation of unambiguous terms is a question of law)
- HDRE Bus. Partners Ltd. Grp., L.L.C. v. RARE Hosp. Int’l, Inc., [citation="484 F. App'x 875"] (5th Cir. 2012) (HDRE I) (reversing district court summary-judgment finding of novation)
- HDRE Bus. Partners Ltd. Grp., L.L.C v. RARE Hosp. Int’l, Inc., [citation="577 F. App'x 264"] (5th Cir. 2014) (HDRE II) (affirming jury finding of novation)
Decision: Reversed the district court’s award of attorneys’ fees because the Lease was novated and its attorneys’ fees provision was extinguished.