ARE Sikeston Ltd. Partnership v. Weslock Nat., Inc.
| Decision Date | 22 July 1997 |
| Docket Number | 96-3104,96-3143,Nos. 96-3058,s. 96-3058 |
| Parties | ARE SIKESTON LIMITED PARTNERSHIP, a Pennsylvania limited partnership; American Real Estate Investment Corporation, as general and limited partner; American Hotel Management, Inc., Appellants, v. WESLOCK NATIONAL, INC.; Nalcor, doing business as American Builders Hardware Corp., Inc., Appellees. WESLOCK NATIONAL, INC., Third Party Plaintiff-Appellee, v. WESTINGHOUSE ELECTRIC CORPORATION, Third Party Defendant-Appellee. ARE SIKESTON LIMITED PARTNERSHIP, a Pennsylvania limited partnership; American Real Estate Investment Corporation, as general and limited partner; American Hotel Management, Inc., Plaintiffs, v. WESLOCK NATIONAL, INC.; Nalcor, doing business as American Builders Hardware Corp., Inc., Defendants. WESLOCK NATIONAL, INC., Third Party Plaintiff-Appellant, v. WESTINGHOUSE ELECTRIC CORPORATION, Third Party Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Thomas M. Franklin, Kansas City, MO, argued, for appellant.
Richard Philip Sher, Clayton, MO, argued, for appellee.
Before MURPHY, HEANEY, and MAGILL, Circuit Judges.
ARE Sikeston Limited Partnership and its general and limited partners (collectively, ARE Sikeston) brought this action against Weslock National, Inc. (Weslock National) and Nalcor, Inc. (Nalcor). In its action, ARE Sikeston alleges that Weslock National and Nalcor are liable for the rent payments remaining on a 15-year lease that Nalcor entered into with ARE Sikeston. Weslock National filed a third-party complaint against Westinghouse Electric Corporation (Westinghouse), seeking indemnification or contribution in the event that Weslock National is held liable to ARE Sikeston. Weslock National and Westinghouse moved for summary judgment. ARE Sikeston moved for leave to file an amended complaint to add Westinghouse as a defendant. The district court 1 granted Weslock National's and Westinghouse's motions for summary judgment and denied ARE Sikeston's motion for leave to amend its complaint. ARE Sikeston Ltd. Partnership v. Weslock National, Inc., 932 F.Supp. 240, 243 (E.D.Mo.1996). In addition, the district court subsequently entered a judgment against Nalcor. ARE Sikeston appeals, and Weslock National brings a protective cross appeal. We affirm.
Nalcor, a manufacturer of residential door knobs and locksets, owned 30 acres of commercial real estate in Sikeston, Missouri (the Sikeston Property). The Sikeston Property included a 106,500-square-foot building that housed Nalcor's lock manufacturing operations. On December 27, 1988, ARE Sikeston purchased the Sikeston Property from Nalcor, and as a part of the same transaction, ARE Sikeston leased backed the property to Nalcor pursuant to a written lease.
The term of the lease was for fifteen years at a rental rate of $299,250 per year, to be adjusted annually for inflation. See Lease by and between ARE Sikeston Limited Partnership and Nalcor, Inc. (Dec. 27, 1988) (Lease) at §§ 1.02, 2.01, reprinted in I J.A. at 20-22. The lease also provided that "[a]ll assignments and subleases shall be subject to the prior written approval of Landlord [ARE Sikeston], which approval shall not be reasonably withheld or delayed." Lease at § 9.01(a), reprinted in I J.A. at 33.
In December 1989, Nalcor acquired another lock manufacturing company and two plumbing parts manufacturers. As a result of the acquisition, Nalcor acquired additional manufacturing facilities in Mexico and California. 2 At its Sikeston Property facility, Nalcor continued its lock manufacturing operations.
In order to finance the December 1989 acquisitions, Nalcor obtained a $36 million credit facility from Westinghouse. To secure this loan, Westinghouse took three major steps. First, Westinghouse took a first lien and security interest in virtually all of Nalcor's assets, including those assets of Nalcor located at the Sikeston Property. In the event of a default, the financing and security agreement between Westinghouse 3 and Nalcor gave Westinghouse both the right to demand full payment and the right to take possession of Nalcor's assets, including those located at the Sikeston Property, if the demand for payment were not satisfied. See Financing & Security Agreement (Dec. 29, 1989) at § 14.1(C),(F), reprinted in I J.A. at 413-14. In addition, upon default, the financing and security agreement granted Westinghouse the right to collect Nalcor's accounts receivable and to sell its assets. Id. at § 14.1(G),(H), reprinted in I J.A. at 414-15. As defined by the financing and security agreement, an event of default included the insolvency of Nalcor. See id. at § 13(E), reprinted in I J.A. at 411.
Westinghouse also took a security interest in Nalcor's lease and leasehold interest in the Sikeston Property. Westinghouse's security interest in Nalcor's leasehold of the Sikeston Property was set forth in a leasehold deed of trust executed by Nalcor and Westinghouse. Under the leasehold deed of trust, Westinghouse had the right to enter the Sikeston Property and to hold, use, and conduct business on the property in the event of a default by Nalcor. Specifically, the leasehold deed of trust provided:
Upon the occurrence of one or more Events of Default ... [Westinghouse] personally, or by its employees, agents or attorneys, may enter into and upon all or any part of the [Sikeston Property], and exclude [Nalcor], its agents and servants wholly therefrom; and having and holding the same, use, operate, manage and control the [Sikeston Property] and conduct the business thereof.... [Westinghouse] shall have the right to manage and operate the [Sikeston Property] and to carry on the business thereof....
Leasehold Deed of Trust (Feb. 13, 1990) at § 8, reprinted in I J.A. at 124. In addition, pursuant to § 8(c)(i) of the leasehold deed of trust, Westinghouse had the right to foreclose on Nalcor's leasehold of the Sikeston Property in the event of a default. See id. at § 8(c)(i), reprinted in I J.A. at 124.
Finally, Westinghouse also required that ARE Sikeston, as landlord, agree to waive certain of its rights with respect to Nalcor's assets and the Sikeston Property. Accordingly, Westinghouse, ARE Sikeston, and Nalcor entered into a Landlord's Consent and Waiver of Lien Rights. Pursuant to this agreement, ARE Sikeston consented
to the transfer, assignment, pledge, mortgage or encumbrance by [Nalcor] in favor of [Westinghouse] of [Nalcor]'s right, title and interest in and to [Nalcor]'s personal property and fixtures located at the [Sikeston Property] and to the grant by [Nalcor] of a Leasehold Mortgage of the [Sikeston Property] in favor of [Westinghouse].
Landlord's Consent & Waiver of Lien Rights (Dec. 29, 1989) at § 1, reprinted in Appellee's Add. Moreover, as a part of the same agreement, ARE Sikeston gave up any rights it may have had to a first security interest in Nalcor's assets and retained only a subordinated security interest. See id. at § 2, reprinted in Appellee's Add.
ARE Sikeston further agreed not to "modify, amend, terminate (except upon expiration of the Term of the Lease), accept a surrender or abandonment of, or otherwise agree to change the terms of the Lease, without the consent of [Westinghouse], which shall not be unreasonably withheld." Id. at § 3, reprinted in Appellee's Add. In the event of the termination of the original lease as a result of Nalcor's default, ARE Sikeston agreed "to enter into a new lease ('New Lease') of the Premises at the option of [Westinghouse] for the remainder of the term of the Lease ... at the rent and additional rent, and upon the terms, covenants and conditions ... of the [original] Lease...." Id. at § 5, reprinted in Appellee's Add. Finally, the parties agreed that "[i]f any one or more provisions of the Lease conflict with any provision [of the Landlord's Consent and Waiver of Lien Rights], such provisions of the Lease shall be wholly subordinate to and superseded by the applicable provision [of the Landlord's Consent and Waiver of Lien Rights]." Id. at § 7, reprinted in Appellee's Add.
In each of the years following the December 1989 acquisitions, Nalcor lost money and as a result gradually slipped into insolvency. By April 1993, Westinghouse estimated that it was undersecured in its loans to Nalcor by more than $10 million. Around this same time, Westinghouse began to explore the possibility of having another company acquire Nalcor. On April 20, 1993, Westinghouse declared Nalcor to be in default and made demand on Nalcor for full payment of Nalcor's obligations to Westinghouse. On June 1, 1993, when it became clear that Nalcor could not pay in full, Westinghouse demanded that Nalcor turn over its assets.
Nalcor complied with Westinghouse's demand and, in early June 1993, turned over its assets in place to Westinghouse, including the assets at the Sikeston Property. Westinghouse took possession of the Sikeston Property and began operating Nalcor's business while simultaneously marketing Nalcor's assets for sale. However, Westinghouse never foreclosed on Nalcor's leasehold. Furthermore, ARE Sikeston never requested Westinghouse's permission to exercise any rights against Nalcor's assets nor did ARE Sikeston ever request a termination or modification of the lease.
In the first week of June 1993, Westinghouse informed ARE Sikeston that Westinghouse had taken possession of Nalcor's assets at the Sikeston Property and that Westinghouse intended to run the business while it looked for a purchaser that would buy Nalcor as a going concern. According to Dale Kuhlman, ARE Sikeston's property manager, Westinghouse also discussed with ARE Sikeston that "it was in everyone's interest to allow [Westinghouse] to continue to pay the rent, to market the property, because at the end we would each get what we wanted[;] ... [Westinghouse] would get some payment for their assets and [ARE Sikeston]...
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