222 F.3d 845 (10th Cir. 2000), 99-8008, Mile High Industries v Cohen

Docket Nº:99-8008
Citation:222 F.3d 845
Party Name:MILE HIGH INDUSTRIES, Plaintiff - Counter-Defendant - Appellant, v. ROBERT L. COHEN, Defendant - Counter-Claimant - Appellee.
Case Date:August 18, 2000
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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222 F.3d 845 (10th Cir. 2000)

MILE HIGH INDUSTRIES, Plaintiff - Counter-Defendant - Appellant,

v.

ROBERT L. COHEN, Defendant - Counter-Claimant - Appellee.

No. 99-8008

United States Court of Appeals, Tenth Circuit

August 18, 2000

Appeal from the United States District Court for the District of Wyoming. D.C. No. 93-CV-85-J

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[Copyrighted Material Omitted]

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Walter Urbigkit of Frontier Law Center, Cheyenne, Wyoming, for Plaintiff-Appellant.

Sheldon E. Friedman (Blain D. Myhre of Isaacson, Rosenbaum, Woods & Levy, Denver, Colorado; and Carl L. Lathrop of Lathrop & Rutledge, Cheyenne, Wyoming, with him on the brief) of Isaacson, Rosenbaum, Woods & Levy, Denver, Colorado, for Defendant-Appellee.

Before BRORBY, McKAY and MURPHY, Circuit Judges.

BRORBY, Circuit Judge.

This controversy arises from agreements executed for the sale and "lease back" of a shopping center known as the "Wyoming Plaza" located in Cheyenne, Wyoming. Appellant Mile High Industries (Mile High), a Wyoming corporation, as seller and lessee of the property, brought a diversity action for declaratory judgment in federal district court, pursuant to 28 U.S.C. § 1332, against Robert L. Cohen, a Colorado citizen and the buyer and lessor under the agreements. Mr. Cohen counterclaimed, also seeking declaratory judgment. Mile High appeals the district court's decision granting declaratory judgment to Mr. Cohen. We exercise jurisdiction under 28 U.S.C. § 1291 and affirm.

I. FACTUAL BACKGROUND

For the purpose of ruling on the parties' requests for declaratory judgment, the district court made the following findings of fact. In April 1970, Mile High and Mr. Cohen entered into a Purchase Agreement for the sale and "lease back" of the Wyoming Plaza shopping center located in Cheyenne, Wyoming. Under the terms of the Purchase Agreement, Mr. Cohen agreed to pay $1,378,000 for the shopping center, with the total purchase price consisting of: 1) a cash payment of $177,250 to Mile High; 2) assumption of Mile High's mortgage with Jefferson Standard Life Insurance (Jefferson Standard) in the amount of $825,000; and 3) a promissory note and second mortgage (Mortgage) in favor of Mile High for $325,750.1 In turn, Mile High agreed to sell the shopping center to, and lease it back from, Mr. Cohen for a sixteen-year term. Pursuant to the terms of the Purchase Agreement, Mr. Cohen executed a Promissory Note and a Mortgage in favor of Mile High, and the parties executed a sixteen-year lease agreement.

The documents executed as part of the sale and "lease back" of the shopping center tied Mr. Cohen's performance on both the Promissory Note and Mortgage to Mile High's performance of its obligations under the Lease Agreement. Specifically, the Promissory Note provided:

This note is executed subject to the terms of those certain agreements concerning the sale and lease of the real

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property pledged as security for this note. In the event that the named payee of this note [Mile High] ... defaults under the terms of the lease agreement ..., or the terms of the purchase agreement ..., then no further payments are required to be made hereunder and any remaining balance due is, in accordance with said agreements, declared null, void and of no further force or effect.

(Emphasis added). Similarly, the rider to the Mortgage from Mr. Cohen to Mile High provided:

This mortgage is executed subject to the terms of those certain agreements concerning the sale and lease of the real property herein described. In the event the Mortgagee [Mile High] ... defaults under the terms of the lease agreement ..., or the terms of the purchase agreement ..., then no further payments are required to be made under the terms of the note secured by this mortgage, and any remaining balance due is, in accordance with said agreements, declared null, void and of no further force or effect, in which event this mortgage shall be deemed null, void and of no further force and effect, and the holder thereof [Mile High] shall execute any and all releases required.

(Emphasis added.)

Consistent with the terms of the Promissory Note and the Mortgage, the Purchase Agreement provided:

Said mortgage shall further provide that in the event [Mile High] or its assigns should default in the payment of rental provided under the lease obligation ..., [Mr. Cohen] shall automatically be released from any further obligation in regard to either the mortgage or the aforesaid note.

(Emphasis added). In addition to this default provision, the Purchase Agreement also provided:

Commencing with the fifth year of said note [i.e. 1975], [Mr. Cohen] shall make payments equal to the amortization payments as reflected in the attached Schedule B; providing [Mr. Cohen] receives net rental of $138,000.00 per year. If [Mr. Cohen] receives rental less than $138,000.00 per year, no payments will be due to [Mile High] on said note.

The Lease Agreement required Mile High to pay $11,500 in monthly lease payments by the first day of each month, plus all costs of upkeep, maintenance, repairs, utilities, taxes and insurance.

On May 1, 1971, the parties amended the Lease Agreement, allowing Mile High to pay its rent on the tenth, rather than the first, day of the month. In turn, the parties agreed an automatic default would occur if Mile High failed to pay its rent on time, eliminating the requirement that Mr. Cohen provide Mile High ten days' written notice of Mile High's default in payment of rent.

In 1979, Mile High sought to obtain a lien release from Jefferson Standard on a 4.69 acre parcel owned by Mile High but encumbered by the Jefferson Standard mortgage assumed by Mr. Cohen. By letter dated August 29, 1979, Mile High's President, James P. Federer, informed Mr. Cohen:

Jefferson Standard is not willing to release their Mortgage even though I escrow the money. It looks like the only answer is for me to pay the $50,000.00 on the First Mortgage to Jefferson Standard and to get you to agree to add it to the Mortgage balance owed by you to us. I believe the interest rate is the same, if not we would adjust it to be the same as the Jefferson Standard rate and it would be paid out on the end of the Jefferson Mortgage.

If when you receive the notice from Jefferson Standard of the payment on the Mortgage principal, I would appreciate a letter stating you have received the notice of payment and agreeing to pay to us at the end like sum of money on the same term.

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(Emphasis added). In a September 5, 1979 letter, Mr. Cohen stated he did not object to the procedure outlined in Mr. Federer's August 29 letter, and as soon as he received notification from Jefferson Standard, he would "prepare a suitable letter for your files." Subsequently, Mile High paid the $50,000 and received a release of the lien on its 4.69-acre tract. However, Mr. Cohen never wrote the referenced letter.

During the active term of the Lease Agreement, Mr. Cohen experienced various defaults and breaches of the agreement by Mile High. Concern over Mile High's ability to perform under the Lease Agreement precipitated the parties' practice and unwritten agreement that Mile High would make its lease payments to Mr. Cohen prior to Mr. Cohen making quarterly mortgage payments to Mile High.2

Ultimately, a series of events occurred in October 1981 leading to the instant litigation. To begin, Mile High failed to make the lease payment due October 10, 1981. In the meantime, Mr. Cohen did not make the September 30, 1981 payment on his Mortgage with Mile High because of the parties' understanding the mortgage payments would be made only after receipt of Mile High's monthly lease payment. On October 23, 1981, Mr. Cohen wrote to his attorney, stating:

I am having increasing difficulty with Jim Federer [of Mile High] in payment of his rent. He still has not paid the rent for the month of October nor have I paid him the payment on the second [mortgage] due early October.

I would appreciate it if you would get out these agreements and see what our next step is. We are all right this month since I owed him as much as he owed me, however, beginning the next month if we do not get rent from him we are going to have difficulty making our mortgage payments. It might, therefore, be to our advantage to move quickly to declare the lease terminated and instruct all tenants to pay us directly.3

By letter dated October 27, 1981, Mr. Cohen's attorney sent Mile High a notice of default for October's rent. A few days later, Mile High sent Mr. Cohen a check dated November 2, 1981, in the amount of $11,000 instead of the $11,500 due for October's rent. When Mile High did not make its $11,500 November lease payment by the tenth, Mr. Cohen's attorney sent a letter dated November 13, 1981, acknowledging receipt of the $11,000 check, but stating Mile High was "still in default under the lease" because it owed a total of $500 for October's rent, $11,500 for November's rent, plus $8,300 for insurance due on the building. The letter ended by stating "this letter shall serve as further notice of default and in the event Mr.

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Cohen does not have certified funds in his hands in the amount of $8,800 [i.e., $8,300 insurance and $500 October rent] within ten (10) days, we shall take such action as may be necessary to protect our client's interest." Mile High never paid the $8,300 for the unpaid insurance, $500 for the outstanding October rent, $11,500 for November's rent, or any real estate taxes due in 1981.

On December 2, 1981, Mr. Cohen's attorney sent a letter to Mr. Federer giving him written notice Mr. Cohen was "terminating said lease [as of] December 2...

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