Aeroground, Inc. v. Centerpoint Props. Trust

• Decision Date: 23 December 2013
• Docket Number: No. 13–1956.,13–1956.
• Citation: 738 F.3d 810
• Parties: AEROGROUND, INC., d/b/a Menzies Aviation, Plaintiff–Appellant, v. CENTERPOINT PROPERTIES TRUST, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

738 F.3d 810

AEROGROUND, INC., d/b/a Menzies Aviation, Plaintiff–Appellant,

v.CENTERPOINT PROPERTIES TRUST, Defendant–Appellee.

No. 13–1956.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 4, 2013.

Decided Dec. 23, 2013.

William J. Dorsey, Attorney, Katten Muchin Rosenman LLP, Chicago, IL, for Plaintiff–Appellant.

David A. Eide, Attorney, Lawrence M. Karlin, Attorney, Karlin Eide, Chicago, IL, for Defendant–Appellee.

Before FLAUM, EASTERBROOK, and TINDER, Circuit Judges.

FLAUM, Circuit Judge.

In 2007, two companies—Menzies and CenterPoint—entered into a ten-year lease for a warehouse near O'Hare Airport. CenterPoint, the lessor, owns the warehouse; Menzies, the lessee, operates an air cargo handling business, which includes the use of 15,000– and 30,000–pound forklifts.It did not take long for these heavy forklifts to severely damage the concrete slab on which the machines operated. The parties dispute who is responsible for fixing the damage, at a cost of about $1 million. Under the lease, Menzies is responsible for repairing the warehouse's “floor,” while CenterPoint is responsible for repairing its “foundation.” Menzies sued. After a bench trial, the district court concluded that the damage affected only the surface of the concrete slab—i.e., it affected the slab's function as a floor, not its function as a foundation. Therefore, Menzies was not entitled to recover. We affirm.

I. Background

Aeroground Inc., which does business as Menzies Aviation (“Menzies”), operates an air cargo handling business. CenterPoint Properties Trust (“CenterPoint”) is a real estate investment trust that owns a warehouse near O'Hare Airport. The facility is a single-story structure—a 185,280 square-foot warehouse built in 1998 or 1999, plus a large addition built in 2007. Another company used the building to store airplane parts from 1999 until 2006.

In February 2007, Menzies and CenterPoint entered into a lease for the building. After a dispute, the parties mutually terminated that lease and signed a new, ten-year lease in November 2007. Between February and November, CenterPoint constructed various improvements to the building, at Menzies' request, including increasing the number of dock doors from two to thirty-eight and installing 45,000–pound dock levelers. These improvements cost CenterPoint about $1.4 million.

When Menzies began moving its air cargo handling operations into the building in November 2007, the six-inch concrete slab did not exhibit any visible damage. By January 2009, the concrete slab had begun to deteriorate. The damage—“cracking, scaling of the concrete surface, and raveling along contraction joints”—was not consistent with typical wear and tear. The slab could not support Menzies' heavy forklifts, which were typical of its field. Menzies told CenterPoint about these problems in January 2009. CenterPoint paid for some repairs (at a cost of about $92,000), but then stopped doing so. CenterPoint did not submit an insurance claim. The parties agree that the concrete slab is so damaged that it must be replaced, at an estimated cost of between $966,000 (the cost of a new, identical floor) and $1.23 million (the cost of a new floor that would permit heavy forklift operation).

As relevant here, Menzies sued CenterPoint for breach, and CenterPoint counterclaimed. Both parties contended that the other was responsible for replacing the concrete slab and had breached the lease by failing to replace the slab. After a bench trial, the federal district court held that neither party was entitled to recover. The court found that the concrete slab had a “dual nature as both floor and foundation,” but “the damage at issue was related to the slab's function as a floor.” The damage was therefore Menzies' responsibility since Menzies is responsible for the “floor”—not CenterPoint's responsibility, which includes the “foundation.” However, CenterPoint lost on its counterclaim, because the lease required that it give timely notice to Menzies if Menzies allegedly breached, and CenterPoint did not do so. Only Menzies appeals.

II. Discussion

In an appeal from a bench trial, we review for clear error the district court's findings of fact and its applications of law to those findings of fact. Egan Marine Corp. v. Great Am. Ins. Co. of New York, 665 F.3d 800, 811 (7th Cir.2011). A finding is “clearly erroneous” when, even though there is evidence to support it, “the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Winforge, Inc. v. Coachmen Indus., 691 F.3d 856, 868 (7th Cir.2012) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). “The party alleging error bears the burden of demonstrating that particular factual findings were clearly erroneous.” Id. We review de novo the district court's interpretation of a contract as well as its conclusion that a contract is ambiguous. BKCAP, LLC v. CAPTEC Franchise Trust 2000–1, 572 F.3d 353, 358 (7th Cir.2009). If we find the contract ambiguous, then the district court's interpretation is a factual one, reviewed for clear error. Wikoff v. Vanderveld, 897 F.2d 232, 238 (7th Cir.1990).

Where, as here, our jurisdiction is based on diversity, the resolution of substantive issues is determined by the applicable state law. LaSalle Nat. Bank v. Serv. Merch. Co., 827 F.2d 74, 78 (7th Cir.1987). The parties agree that Illinois law applies. Under Illinois law, the interpretation of a lease “is governed by the rules which govern contracts.” Midland Mgmt. Co. v. Helgason, 158 Ill.2d 98, 103, 196 Ill.Dec. 671, 630 N.E.2d 836 (1994). We therefore apply Illinois principles of contract interpretation. The goal of contract interpretation is to ascertain the parties' intent, and in so doing, we first look to “the plain and ordinary meaning” of the contract language. Gallagher v. Lenart, 226 Ill.2d 208, 233, 314 Ill.Dec. 133, 874 N.E.2d 43 (2007). We must construe the contract “as a whole, viewing each part in light of the others.” Id. We also must seek to give effect to “each clause and word used,” without rendering any terms meaningless. Hufford v. Balk, 113 Ill.2d 168, 172, 100 Ill.Dec. 564, 497 N.E.2d 742 (1986). The more specific provision of a contract governs where it arguably conflicts with a more general provision. Grevas v. U.S. Fidelity & Guar. Co., 152 Ill.2d 407, 411, 178 Ill.Dec. 419, 604 N.E.2d 942 (1992).

A. The terms of the lease

We begin by summarizing the lease's terms. The lease does not use the term “slab” or “concrete slab,” nor does it define “floor” or “foundation.” The lease does state that the permitted uses for the warehouse include air cargo handling and storage. Moreover, Menzies “agree[d] to accept the Premises in an absolutely ‘as is' condition,” and CenterPoint did “not make warranties” as to the premises. The lease defines “Improvements” as the existing building and the building expansion. The lease divides responsibility for repairs as follows:

Section 7.1. Tenant's Obligations. Except as set forth in Section 7.2, Tenant assumes full and sole responsibility for the condition, operation, repair, alteration, improvement, replacement, maintenance and management of the Premises.... Except as set forth in Section 7.2, Tenant shall, at its sole cost and expense, promptly perform all maintenance and promptly make all necessary repairs and replacements, ordinary as well as extraordinary, foreseen as well as unforeseen, in and to the Premises and any equipment now or hereafter located in the Premises, including, but not limited to, all floors, floor coverings, windows, glass, plate glass, ceilings,....

Section 7.2. Landlord's Obligations. ... Landlord shall maintain, repair and replace the roof, exterior walls, foundation and structural portions of the Improvements ... and all exterior portions of the Project.... Landlord shall repair and replace the exterior walls, roof and foundation of the building that is a part of the Improvements. The cost of all repairs and replacements under this Section ... shall be the sole responsibility of Landlord, except to the extent such costs arise as a result of any act or omission of Tenant....

Section 9.1. Restoration. In the event the Improvements shall be damaged or destroyed, in whole or in part, Landlord covenants and agrees that, unless otherwise provided in the Ground Lease, Landlord shall repair, restore or rebuild any such Improvements so damaged, injured or partially destroyed, or erect, finish and complete a like building....

The lease also requires that Menzies carry several types of insurance and that CenterPoint carry “insurance on all Improvements against ... all ... risks of direct physical loss.”

To summarize, Section 7.1 makes Menzies responsible for repairing “all floors,” while Section 7.2 (usually) makes CenterPoint responsible for repairing the “foundation.” CenterPoint is also responsible, under Section 9.1, for repairs or reconstruction if the building is partially or totally damaged. For the reasons explained below, we agree with the district court that this lease is ambiguous, and that CenterPoint is not responsible for repairing the slab.

B. Section 7.1 vs. Section 7.2

The lease does not specifically define the floor or the foundation, nor does it indicate how precisely to distinguish between Section 7.1's floor repair obligations and Section 7.2's foundation repair obligations. When we consider the ordinary meaning of the relevant terms, foundation means “an underlying base or support; especially the whole masonry substructure of a building.” Merriam–Webster Dictionary Online, available at http:// merriam- webster. com/ dictionary (last visited December 19, 2013). “Floor” means “the level base of a room”; “the part of a room on which you stand.” Id.

The district court found that the evidence established that the concrete slab had a “dual nature as both floor and...