On Tuesday, General Session Court ordered Christopher Reyes, Sarah Fleming, and their two children to vacate the property at 1 S. Main that the family has has occupied for more than 25 years.
In addition, the judge ordered Vernice Kuglin, Reyes’ mother, to pay $102,397 to 1 S. Main LLC, a company created by Aparium Hotel Group, the owners of the Madison Hotel, to administer the property.
The case stems from a 1992 agreement between Memphis real estate developer Henry Turley and Kuglin, then a pilot for FedEx. Turley had owned the property, which, like much of Downtown during that time period, was vacant and in disrepair.
Long before the contemporary downtown renaissance, Kuglin and her son, Reyes, expressed interest in buying the entire building on the corner of Main and Madison and renovating it.
But financing for the full amount was not available, so Turley and Kuglin struck a deal that would create a condominium arrangement for the then-vacant second floor.
“We liked the idea of artist loft living”, Turley said on the witness stand as the trial commenced last Wednesday.
Kuglin and Reyes took out a $55,000 mortgage against the property and paid Turley. That mortgage has since been paid off.
But at the time, the property was under the auspices of a Payment In Lieu Of Taxes (PILOT) program, so the deed to the property was ultimately held by the Center City Finance Corporation, a board affiliate of the Center City Commission, (now called the Downtown Memphis Commission) with Turley listed as lessee and Kuglin’s interests covered under a sub-lease.
Under the agreement struck at that time, Kuglin and Reyes would have the option to buy the property outright for $1 once the PILOT program expired in December 2001.
“We went through all sorts of machinations to inform the city of our intentions,” Turley testified.
Reyes moved in and performed extensive renovations to the property, building an entire second floor and expanding the available square footage from 4,000 to more than 6,400 square feet.
He both lived and ran his businesses out of the condominium, which included computer consulting, filmmaking, digital art and sculpture, karate lessons, and, for eleven years, Live From Memphis, an arts organization that ran a website devoted to city’s “music, art, film, and culture”.
Before the PILOT expired in 2001, the term was extended for 15 years. In 2006, Turley sold the building to 79 Madison LLC, owners of the then-new Madison Hotel.
Reyes and Kuglin claimed that, in their initial meeting with Madison hotel owner Mohammad Hakim, he expressed interest in buying their share in the building. In the meantime, Hakim stopped billing them for the annual property tax assessment and handed maintenance of the 1 S. Main condo over to Reyes.
Meanwhile, Reyes and his long term partner Sarah Fleming had two children and continued to live and operate their businesses out of 1 S. Main. The property is currently assessed at $250,000, but based on the going rates of improved Downtown properties it could be worth upwards of $800,000.
In June 2016, the Madison Hotel was sold to new owners, a Chicago conglomerate called Aparium Hotel Group and G4, a New York equity firm. Kuglin was informed that the 1 S. Main property, along with the Madison Hotel, had been sold to while still under the PILOT agreement.
When the PILOT expired on December 15, the property was transferred from the Memphis Center City Finance Corp. to 1 S. Main LLC., which the new owners had formed to administer the building.
“We thought the PILOT expired at the end of the month, but actually it expired on the 15th," Fleming said. "No one informed us when the PILOT expired. We got served a (Forcible Entry and Detainer) eviction notice on December 29.”
The company claimed that Kuglin and Reyes were in breach of their lease and sued to evict the family in General Sessions Court Tuesday.
The company also demanded operating costs, monetary defaults, building improvements, and lawyer fees totalling $102,397. Kuglin and Reyes countersued for breach of contract and emotional distress.
Kuglin and Reyes were represented by Newton Anderson, while 1 S. Main LLC was represented by S. Joshua Kahane, of Memphis law firm Glankler Brown. As the trial began on Wednesday, Judge Lonnie Thompson commented on the complexity of the case, saying “We could be litigating this until I’m off the bench.”
But Kahane seemed determined to simplify the proceedings by objecting to virtually every bit of evidence entered by Anderson, as well as every question asked by Anderson of any witness.
Kahane’s behavior drew occasional gasps and giggles from the observers in the courtroom. Kahane was successful at convincing the judge to rule inadmissable many pieces of evidence introduced by the defense and many statements by their witnesses.
Company attorney Michael Kitchen testified that, since 1 S. Main LLC had bought the building, and the only right Kuglin and Reyes had to occupy the building was a sub-lease with the previous owner, they were within their rights to evict Reyes and his family and take full possession of the entire building.
Tensions between the attorneys rose as the trial entered its second day on Tuesday.
When Anderson attempted to call Kitchen back to the stand as a hostile witness, it prompted a lengthy and contentious exchange between the attorneys.
“They are trying to steal this property, your honor,” Anderson said, “The actions of this Chicago company are outrageous.”
Eventually, Judge Thompson allowed Anderson to call Kitchen back to the stand as a hostile witness.
“I want everyone to feel like they’ve gotten a fair shake,” Thompson said.
Anderson used the opportunity to introduce an application for a $100,000 Exterior Improvement Grant 1 S. Main LLC had submitted to the Center City Commission, in which they had claimed that there was no pending litigation that would affect the property, despite the fact that 1 S. Main LLC had already sued Kuglin and Reyes at the time.
Kahane continued to object repeatedly to defense stataments, until Anderson reached a breaking point, citing what he called Kahane’s “harassment objections.” He snapped at Kahane during the cross examination of Christopher Reyes.
The judge called both attorneys into his chamber. When the trial resumed, Kahane was marginally more respectful.
Kahane eventually said that Kuglin had the right to buy the property for $1, but that since she had not exercised that option when the PILOT expired, they were now under the jurisdiction of laws governing the landlord-tenant relationship.
Anderson countered that the documents conferring the option did not specify an expiration date, and thus Kuglin and Reyes could exercise their purchase option at any time after the expiration of the PILOT.
The final witness was Kuglin, who testified over Kahane’s objections that she and Reyes had “made a commitment to Mr. Turley to create something that the city could be proud of.”
When asked how she felt when she was sued, she said “I felt betrayed.”
After both sides questioned Kuglin, the judge directly asked her questions about the events of the last 25 years.
During his closing arguments, Kahane said “I wish to apologize publicly and on the record to Mr. Anderson,” for his behavior in court.
With his ruling, Judge Thompson first dismissed the countersuit and then found for 1 S. Main LLC on every claim, including the $102,397 in damages they sought. Included in those damages are more than $50,000 in funds marked for future improvements to the building.
Fleming said after the trial, “I want to make it clear that not only have they stolen our home, but they have included in the damages money to make it better in the future.”
Kitchen and his legal team left the courtroom pursued by reporters, but declined to answer questions. “We appreciate your interest in this case,” Kahane said.
Reyes left the courtroom in tears, and was advised by his counsel to not answer questions.
“We’re obviously very disappointed in the outcome, and are assessing our options at this point,” said Anderson.