Chapman & Cole v. Itel Container Intern. B.V., No. 87-2973

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Writing for the CourtJERRE S. WILLIAMS
Citation865 F.2d 676
Parties, RICO Bus.Disp.Guide 7148 CHAPMAN & COLE and CCP, Ltd., Plaintiffs-Counter Defendants, Appellees-Cross Appellants, v. ITEL CONTAINER INTERNATIONAL B.V. and Itel Containers International Corp. (ITEL), Defendants-Counter Plaintiffs, Third Party Plaintiffs, Appellants-Cross Appellees. URQUHART AND HASSELL, Attorneys for Itel Container International B.V., et al., Appellants, v. Norman EHRENTRAUT, Third Party Defendant-Appellee.
Decision Date17 February 1989
Docket NumberNo. 87-2973

Page 676

865 F.2d 676
13 Fed.R.Serv.3d 124, RICO Bus.Disp.Guide 7148
CHAPMAN & COLE and CCP, Ltd., Plaintiffs-Counter Defendants,
Appellees-Cross Appellants,
v.
ITEL CONTAINER INTERNATIONAL B.V. and Itel Containers
International Corp. (ITEL), Defendants-Counter
Plaintiffs, Third Party Plaintiffs,
Appellants-Cross Appellees.
URQUHART AND HASSELL, Attorneys for Itel Container
International B.V., et al., Appellants,
v.
Norman EHRENTRAUT, Third Party Defendant-Appellee.
No. 87-2973.
United States Court of Appeals,
Fifth Circuit.
Feb. 17, 1989.

Page 678

Silvia T. Hassell, Edward D. Urquhart, Houston, Tex., David R. Noteware, Laurie Dore, Dallas, Tex., for Itel Container Intern. B.V.

William G. Rosch, III, Houston, Tex., for Urquhart & Hassell.

J. Douglas Sutter, Houston, Tex., for Chapman & Cole.

Fritz Barnett, Mary Kay Klimesh, Houston, Tex., for Ehrentraut.

Appeals from the United States District Court for the Southern District of Texas.

Before GEE, SNEED * and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This action arose over the commercial lease of a container yard. Chapman & Cole (Chapman), the landlord, brought this suit seeking recovery for failure to pay rent and failure to maintain the premises properly against Itel Container International B.V. (Itel), the tenant. Itel counterclaimed alleging that Chapman had failed to design and construct the container yard adequately and alleging a RICO violation by Chapman and one of its employees, Mr. Norman Ehrentraut.

Itel appeals the final judgment award of $562,573.62, plus costs and expenses and attorneys fees in favor of Chapman in the case-in-chief, the breach of contract claim. Itel and Urquhart & Hassel, Itel's counsel for the case-in-chief, appeal the sanctions imposed against them under Federal Rules of Civil Procedure 11, 26, and 37. Chapman also appeals two portions of the judgment: the denial of future rent damages in the breach of contract claim, and the application of the post-judgment interest rate of 7%, the rate set out in the Miller Act.

We deny Itel's and its counsels' appeals and also Chapman's appeals, affirming in its entirety the district court judgment.

I. FACTS AND PRIOR PROCEEDINGS

Itel is in the business of owning, leasing, storing, and moving large aluminum and steel containers all over the world. 1 After deciding to establish a container yard in Houston in late 1979, Itel contacted Coldwell Banker to find an investment builder who would assist in the development and construction of a yard.

Coldwell Banker enlisted Chapman to purchase property for the site, develop it pursuant to plans and specifications approved by both Chapman and Itel, and lease the property back to Itel for a term of ten years. Itel at the end of the lease

Page 679

was then to have an option to purchase the yard.

Chapman purchased the property, and the yard was built through the use of subcontractors. Chapman referred Itel to Mr. Robert Treat, a "dirt/surface subcontractor," and to Mr. John Montgomery, an architect. Itel representatives met with Treat and Montgomery on numerous occasions to plan, develop, and design the facility.

During the planning stage, Itel advised Chapman and the subcontractor Treat that the maximum weight to be utilized on the yard would be 30,000 pounds. 2 The maximum amount of weight was important because the yard needed to be constructed to withstand that weight. Itel also advised them that the containers would be stacked on timber rails to allow for proper drainage and to prevent damage to the flexible surface that was chosen for the site. Pursuant to these advices, the yard was constructed.

In June of 1980, Coldwell Banker, as the agent of Itel, prepared a standard industrial/commercial lease and lease addendum that were signed by Itel as the lessee and Chapman as the lessor. The lease was later amended to state it would begin on February 1, 1981 and end on January 31, 1991. The lease and the addendum are the only written agreements between the parties. They were the subject of a joint stipulation by the parties when they were admitted into evidence at trial. 3

Upon completion of the site in early January 1981, Itel took possession. At the grand opening of the facility in March 1981, Itel declared to the public that it had "designed the greatest facility that this type operation could possibly have."

Itel hired an independent contractor to operate the plant on its behalf. After analyzing the flexible surface material of the plant, the independent contractor informed Itel that the surface could not withstand the weight of the forklifts Itel planned to use. Itel instructed the contractor to use the forklifts as planned anyway. 4 During the first weekend of operations, 1200 containers were placed on the yard. Up to 12,000 were moved on and then off the yard in the ten months Itel had possession of the yard.

During the first month of operation, failures in the surface were already appearing. Upon request by Itel, Chapman, through its subcontractors, made the necessary repairs to the surface. Upon discovering the weights of the forklifts being used on the facility however, Chapman, as well as the subcontractors, refused to make any further repairs after May 15, 1981.

Itel ceased to pay rent on July 1, 1981, remaining on the yard until October 1, 1981. In the face of the contract obligations under the lease and despite substantial damage obviously occurring to the yard, Itel did not make repairs or maintain the yard.

After Itel vacated the property, Chapman undertook repairs. During the renovation, Chapman leased half of the property to Container Maintenance Service (CMS). After renovation, CMS occupied the entire space until 1985 when it went into bankruptcy. The property was then relet to another contractor who also became insolvent and was never able to make any rent

Page 680

payments. The yard has not been relet since.

On November 22, 1982, Chapman sued Itel in the United States District Court for breach of the lease. Chapman claimed that Itel's alleged use of overweight forklifts, its failure to stack containers properly, and its careless maintenance of the yard negligently damaged the yard's surface and appurtenances in breach of the lease contract.

Itel answered and counterclaimed for breach of an alleged turn-key lease, breach of warranty, negligence, and violation of the Deceptive Trade Practices-Consumer Protection Act ("DTPA"), Tex.Bus. & Com.Code Ann. 17.41, et seq. Itel alleged that Chapman failed to complete the facility adequately to support Itel's normal operations; thus, Itel was constructively evicted by these deficiences.

Two years into the case, Itel amended the counterclaim, alleging violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961, et seq., because of alleged violation of the Texas Commercial Statute, Tex.Pen.Code Ann. 32.43 (pre-1983). In its counterclaim, it joined Ehrentraut as a third party defendant. Ehrentraut was Chapman's supervisor for the Itel project. Itel dismissed its claim with prejudice against Ehrentraut the day before trial was to begin because of a settlement agreement with him.

Itel contended in the counterclaim that Ehrentraut had received "kickbacks" by a Mr. Ed Novotny of Dantex Erectors, one of the subcontractors on the project, to "turn his head" during the construction of the surface of the facility by Treat, another subcontractor. While it is clear Ehrentraut did receive at least five checks from Dantex Erectors during the time period in question, the evidence established that these checks were paid to Ehrentraut for other legitimate business transactions completely unrelated to the matter at hand.

After a trial which lasted seven days, the district court entered its findings of fact and conclusions of law. The court awarded Chapman $562,573.72 in actual damages, pre- and post-judgment interest, $13,412.06 in costs and expenses, and $180,000 in attorneys' fees. No future damages were awarded. The court also dismissed Itel's counterclaim with prejudice. Final Judgment issued on August 10, 1987.

The court characterized this case as a "straightforward action for breach of contract," in finding that Chapman had constructed the yard in accordance with the specifications prepared by Itel. It concluded that it was through Itel's failure to maintain the property that damage occurred to the property.

After trial and after a "show cause" hearing, the district court imposed sanctions against Itel and its attorneys. On July 22, 1987, the Court ordered Itel and Urquhart & Hassell to pay appellees $20,000 in sanctions, allocating $15,000 to Chapman and $5,000 to Ehrentraut. The court found that Itel and its attorneys had violated Federal Rule of Civil Procedure 11 by failing to make an objectively reasonable inquiry regarding the third party RICO action. The court further held that Itel's attorneys abused the discovery process, holding them liable under Federal Rules of Civil Procedure 27 and 36 for unnecessary discovery requests and for failure to disclose the existence of a taped conversation between one of Itel's attorneys and John Montgomery, a witness in the case.

II. BREACH OF CONTRACT CLAIM

A. Standard of Review

Our review of the facts is limited by the clearly erroneous rule set out in Federal Rule of Civil Procedure 52(a). 5 The court found Chapman to be an "honest and credible" witness with a "straightforward claim for breach of contract." Since the district court was in the best position to determine the nature of the parties' negotiations and

Page 681

understandings, basing its findings on witness credibility, we defer strongly to this finding. See Anderson v. Bessemer City, 470 U.S. 564, 575, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985).

As to the lease itself, the district court found the contract clear and unambiguous. Because of the absence of factual issues, our interpretation of the...

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73 practice notes
  • Hicks v. Bexar County, Tex., No. SA-96-CA-951.
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • 13 Junio 1997
    ...American Airlines, Inc. v. Allied Pilots Association, 968 F.2d 523, 529 (5th Cir.1992); Chapman & Cole v. Itel Container International, 865 F.2d 676, 684 (5th Cir. 1989), cert. denied sub nom., Urquhart & Hassell v. Chapman & Cole, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989); and Ha......
  • Jordaan v. Hall, No. CIV.A. 3:03-CV-0706-G.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
    • 7 Agosto 2003
    ...party and the court of the Rule 11 violation); accord Topalian, 3 F.3d at 937; Chapman & Cole v. Itel Container International B.V., 865 F.2d 676, 684 (5th Cir.), cert. denied, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989). On April 29, 2003, approximately three weeks after the filing ......
  • In re Montgomery Court Apartments, Bankruptcy No. 2-90-07782
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio
    • 26 Mayo 1992
    ...lender and, thus, may be unfair and inequitable. See In re Murel Holding Corp., 75 F.2d 941 (2d Cir.1935); and D & F Construction, 865 F.2d at 676. Here, however, Montgomery Court begins to amortize Greyhound's secured claim approximately 13 months after confirmation. No negative amortizati......
  • In re Lp, Nos. 09–38188
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • 19 Agosto 2011
    ...in a district court ... including actions based on diversity of citizenship.” ”) (quoting Chapman & Cole v. Itel Container Int'l B.V., 865 F.2d 676, 689 (5th Cir.1989), cert. denied, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989) (emphasis in original) (surveying cases)). Therefore, “f......
  • Request a trial to view additional results
73 cases
  • Hicks v. Bexar County, Tex., No. SA-96-CA-951.
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • 13 Junio 1997
    ...American Airlines, Inc. v. Allied Pilots Association, 968 F.2d 523, 529 (5th Cir.1992); Chapman & Cole v. Itel Container International, 865 F.2d 676, 684 (5th Cir. 1989), cert. denied sub nom., Urquhart & Hassell v. Chapman & Cole, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989); and Ha......
  • Jordaan v. Hall, No. CIV.A. 3:03-CV-0706-G.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
    • 7 Agosto 2003
    ...party and the court of the Rule 11 violation); accord Topalian, 3 F.3d at 937; Chapman & Cole v. Itel Container International B.V., 865 F.2d 676, 684 (5th Cir.), cert. denied, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989). On April 29, 2003, approximately three weeks after the filing ......
  • In re Montgomery Court Apartments, Bankruptcy No. 2-90-07782
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio
    • 26 Mayo 1992
    ...lender and, thus, may be unfair and inequitable. See In re Murel Holding Corp., 75 F.2d 941 (2d Cir.1935); and D & F Construction, 865 F.2d at 676. Here, however, Montgomery Court begins to amortize Greyhound's secured claim approximately 13 months after confirmation. No negative amortizati......
  • In re Lp, Nos. 09–38188
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • 19 Agosto 2011
    ...in a district court ... including actions based on diversity of citizenship.” ”) (quoting Chapman & Cole v. Itel Container Int'l B.V., 865 F.2d 676, 689 (5th Cir.1989), cert. denied, 493 U.S. 872, 110 S.Ct. 201, 107 L.Ed.2d 155 (1989) (emphasis in original) (surveying cases)). Therefore, “f......
  • Request a trial to view additional results

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