DBD v. C & S Wholesale Grocers, Inc.

• Decision Date: 28 May 2004
• Docket Number: No. 03-209.,03-209.
• Citation: 857 A.2d 263
• Court: Vermont Supreme Court
• Parties: DOWNTOWN BARRE DEVELOPMENT v. C & S WHOLESALE GROCERS, INC., GU Markets, LLC, GU Markets of Barre, LLC, and Maxi Drug, Inc., Intervenor.

857 A.2d 263

DOWNTOWN BARRE DEVELOPMENT v. C & S WHOLESALE GROCERS, INC., GU Markets, LLC, GU Markets of Barre, LLC, and Maxi Drug, Inc., Intervenor.

No. 03-209.

Supreme Court of Vermont.

May 28, 2004.

Motion for Reargument Denied July 28, 2004.

Andrea L. Gallitano of Otterman and Allen, P.C., Barre, for Plaintiff-Appellee/Cross-Appellant Downtown Barre Development.

Leighton C. Detora of Valsangiacomo, Detora & McQuesten, P.C., Barre, for Appellees/Cross-Defendants-Appellants C & S, et al.

Robert S. DiPalma of Paul, Frank & Collins, P.C., Burlington, for Intervenor-Appellant Maxi Drug, Inc.

Present: AMESTOY, C.J., DOOLEY, JOHNSON and SKOGLUND, JJ., and ALLEN, C.J. (Ret.), Specially Assigned.

¶ 1. SKOGLUND, J.

The principal issue in this case is whether the parties' commercial lease allows the current shopping plaza tenant to divide the subject premises and create two smaller retail establishments out of the space where the former tenant had operated a supermarket. The owner of the shopping plaza, plaintiff Downtown Barre Development (DBD), filed suit in an attempt to stop intervenor Maxi Drug, Inc. from purchasing the former tenant's rights under the lease and commencing renovation work on its plan to divide the premises, set up a Brooks Pharmacy in part of the space where the former supermarket had stood, and sublet the remaining space to another retailer. Based on its interpretation of the parties' lease, the superior court enjoined Maxi Drug and the former tenant from dividing the space and using it for any purpose other than as a supermarket or comparable store. The court also assessed damages against Maxi Drug and the former tenant for violating the lease's implied covenant of good faith and fair dealing. Maxi Drug, the former tenant, and DBD each appeal the court's decision. We conclude that the lease does not preclude Maxi Drug from dividing the commercial space, establishing a Brooks Pharmacy in part of the space, and subletting the remaining space to another retail business. Accordingly, we reverse the superior court's ruling and remand the matter for entry of judgment in favor of Maxi Drug with respect to DBD's complaint. ¶ 2. DBD is a limited partnership formed in 1973 for the purpose of developing and owning the shopping plaza that is at the center of this dispute. DBD bought land, tore down old buildings, and began construction of the shopping center, which included a 26,000 square-foot store connected to smaller stores totaling about 16,000 square feet. Before commencing construction, DBD lined up the commercial leases, including one with Grand Union, Inc. for the large store. The Grand Union lease, which was signed on February 15, 1973, provided for a fixed-base rent, plus a percentage rent that was triggered at $10 million dollars in gross sales and capped at $14 million dollars in sales. The lease was written for twenty years, with four five-year renewal periods. A later amendment to the lease added two more five-year renewal periods. The leases for the minor tenants provided for much shorter terms and regular consumer-price-index increases to the fixed rents.

¶ 3. Grand Union experienced significant financial difficulty during the 1990s, culminating in a bankruptcy liquidation proceeding in 2000. DBD chose not to participate in that proceeding, in which C & S Wholesalers, Inc. purchased many of Grand Union's assets and created Grand Union Markets LLC (GUM) to hold them. C & S then organized a separate limited liability corporation for each of the individual former Grand Union properties. The corporation C & S established to operate the store at the center of this dispute was called Grand Union Markets of Barre LLC (GUMB). In December 2000, the bankruptcy court approved the transfer of the Grand Union lease to GUMB. Throughout this period, the supermarket remained open for business.

¶ 4. Between the summer of 2001 and the summer of 2002, Maxi Drug separately contacted first DBD, and then C & S, about its interest in either purchasing the supermarket plaza or taking over the Grand Union lease. On at least two different occasions, DBD declined Maxi Drug's offer to purchase the shopping plaza. DBD expressed some interest in Maxi Drug's proposal to divide the Grand Union space and operate a Brooks Pharmacy in part of it, but DBD took the position that the existing lease could not be assigned, and that a new lease would have to be negotiated. Ensuing negotiations between Maxi Drug and DBD broke down, but in August 2002 GUMB agreed to assign the Grand Union lease to Maxi Drug for $475,000, with a closing set for October 20, 2002. Maxi Drug then resumed discussions with DBD concerning the terms of a replacement lease. DBD reaffirmed its position that the existing lease could not be assigned and rejected Maxi Drug's proposal to divide the property. On October 18, the Grand Union supermarket ceased operations.

¶ 5. On October 25, 2002, DBD filed a complaint against C & S, GUM, and GUMB, seeking declaratory and injunctive relief, as well as compensatory and punitive damages. Four days later, on October 29, the closing was held on the assignment of the lease from GUMB to Maxi Drug. That same day, a contractor acting on behalf of Maxi Drug obtained a building permit in DBD's name to commence renovation work on the Grand Union property. Upon learning of the permit and proposed renovation, DBD sought a temporary restraining order. Apparently, that request was denied on an ex parte basis because there was no indication that the work would begin before the parties had an opportunity for notice and a hearing. At Maxi Drug's direction, renovation work began on November 6, 2002. The inside of the supermarket was gutted. The contractor intended to refit the space for two separate stores with separate electrical and heating systems, but the superior court temporarily halted the work on November 18.

¶ 6. On December 18, 2002, following two days of hearings, the superior court granted DBD's request for a preliminary injunction. A final merits hearing was held over two days in February 2003, and the court issued its judgment on March 18, 2003. The court concluded that the parties' lease entitled DBD to prohibit its tenant from dividing the Grand Union space and using it for purposes other than as a supermarket or other comparable anchor store. While acknowledging that specific provisions of the lease unambiguously permitted any lawful use of the space, the court determined that the lease as a whole reasonably and necessarily implied a condition that the premises be operated as a single unified supermarket or comparable store. The court also concluded that Maxi Drug and GUMB had violated the covenant of good faith and fair dealing implied in the lease by going ahead with renovation work without disclosing to DBD the extent of the work, even though they knew DBD was opposed to dividing the space. The court assessed damages of only $1000 each against GUMB and Maxi Drug for this violation, however, stating that most of the litigation costs would have been incurred even absent the violation. The court granted injunctive relief to DBD, but assessed no damages other than the $2000, concluding that DBD's request for damages was premature because Maxi Drug still had the opportunity to restore the premises to a condition that would not damage DBD.

¶ 7. On appeal, Maxi Drug argues that the superior court erred (1) by implying lease terms that are directly contradictory to the express terms contained in the unambiguous lease, and (2) by finding that Maxi Drug violated the covenant of good faith and fair dealing implied in the lease. On cross-appeal, DBD argues that the court erred by not (1) requiring the tenants to restore the premises, (2) ruling that DBD was entitled to terminate the lease and eject Maxi Drug following GUMB's assignment of its interest in the property to Maxi Drug, and (3) awarding DBD compensatory damages for the cost of restoring the premises. Also on cross-appeal, C & S, GUM, and GUMB argue that the court erred (1) by not dismissing C & S and GUM from the case, (2) by finding that GUMB was involved in the renovation of the premises, and (3) by concluding that GUMB breached the covenant of good faith and fair dealing implied in the lease.

¶ 8. The principal issue before us is whether the superior court erred by construing the lease to prohibit Maxi Drug from dividing the Grand Union space, setting up a Brooks Pharmacy in part of that space, and subletting the remaining space to another retailer. We review de novo the trial court's determination as to whether the agreement is ambiguous, as well as its construction of the terms of the agreement. See Creed v. Clogston, 2004 VT 34, ¶ 6, ___ Vt. ___, 852 A.2d 577; Morrisseau v. Fayette, 164 Vt. 358, 366, 670 A.2d 820, 826 (1995). While we may consider the circumstances surrounding the making of the agreement in determining whether its provisions are ambiguous, those circumstances "may not be used to vary the terms of an unambiguous writing." Kipp v. Chips Estate, 169 Vt. 102, 107, 732 A.2d 127, 131 (1999). "Where the terms of a lease are plain and unambiguous, they will be given effect and enforced in accordance with their language." KPC Corp. v. Book Press, Inc., 161 Vt. 145, 150, 636 A.2d 325, 328 (1993); see Maglin v. Tschannerl, 174 Vt. 39, 45, 800 A.2d 486, 490 (2002) (when language in agreement is clear, parties' intention and understanding must be taken to be that which their agreement declares); Cross-Abbott Co. v. Howard's, Inc., 124 Vt. 439, 441, 207 A.2d 134, 137 (1965) (same).

¶ 9. To be sure, we consider an agreement as a whole when examining its individual provisions, "but do not read terms into the contract unless they arise by necessary implication." Morrisseau, 164 Vt. at 366-67, 670 A.2d at 826; see John A. Russell Corp. v. Bohlig, 170 Vt. 12, 17, 739 A.2d 1212, 1217 (1999). Further, we may not insert terms into an...