Dayton Development v. Gilman Financial Services
| Decision Date | 23 August 2005 |
| Docket Number | No. 03-4071.,03-4071. |
| Citation | 419 F.3d 852 |
| Parties | DAYTON DEVELOPMENT COMPANY, a Minnesota corporation, Appellee, v. GILMAN FINANCIAL SERVICES, INC., a Delaware corporation, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Timothy D. Kelly, argued, Minneapolis, MN (Erin K. Fogarty Lisle, on brief), for appellant.
Wendy J. Wildung, argued, Minneapolis, MN (Erik J. Girvan, on brief), for appellee.
Before BYE, JOHN R. GIBSON, and GRUENDER, Circuit Judges.
This suit concerns a lease of fixtures in several Target stores across the country. Gilman Financial Services, Inc. (Gilman) appeals the district court's1 grant of summary judgment in favor of Dayton Development Company (Dayton). We affirm.
In 1994, Target, a Minnesota-based retail chain, sold the fixtures (shelving, racks, display counters, and other fixtures) in over one hundred of its stores. Target simultaneously executed an agreement, the User Lease, with the purchaser to lease the fixtures back for five years (with the right to renew for two additional years) with an option to repurchase the fixtures at the end of the lease period. Target entered this sale and leaseback transaction to obtain certain tax advantages.
The transaction was actually a double sale and leaseback in which the purchaser/lessor under the User Lease promptly resold the fixtures to another party, who leased the fixtures to yet another party under a second lease, the Master Lease. The leasehold interests under both the User and Master Leases then changed hands several times. For purposes of this litigation, Target is the lessee under the User Lease while Dayton is the lessor under that lease; Dayton is also the lessee under the Master Lease while Gilman is the lessor under that lease.
Target, after exercising its option to renew the User Lease for two additional years, gave notice of its intention to repurchase the fixtures. The User Lease gave Target the right to repurchase the fixtures at "Fair Market Value," which was defined as the amount
that would be obtained in an arm's length transaction between an informed and willing buyer or a lessee not currently in possession under no compulsion to buy and an informed and willing seller under no compulsion to sell, as determined in the good faith exercise of the judgment of Lessor [Dayton] and Lessee [Target].
In the event the parties to the User Lease could not agree upon the fixtures' fair market value, the User Lease had an alternative valuation method which provided fair market value would be determined "by a knowledgeable independent appraiser to be mutually agreed upon by the parties or, failing such agreement, by a panel of three such appraisers, one selected by Lessor [Dayton], one selected by Lessee [Target] and a third selected by the first two."
Upon Target exercising its repurchase option under the User Lease, the Master Lease obligated Dayton (lessee) to purchase the fixtures from Gilman (lessor) "and to resell such Repurchased Equipment to User [Target] immediately thereafter in accordance with the terms and conditions of the User Lease." The Master Lease further provided the purchase price between Dayton and Gilman would be equal to "the purchase price or other amount to be paid by or on behalf of the User [Target] under the User Lease to the lessor under the User Lease [Dayton]... minus [] the Leasehold Interest Value." In other words, the purchase price under the Master Lease was directly tied to the repurchase price under the User Lease.
The parties to the User Lease, Dayton and Target, agreed in good faith upon a fair market value of $423,023 for the fixtures without having to resort to the alternative valuation method under the User Lease. Dayton then advised Gilman it was prepared to purchase the fixtures from Gilman under the Master Lease for $423,023 so that Dayton could deliver title to the fixtures to Target. Gilman rejected the price as inadequate, and refused to deliver title.
Dayton then commenced this suit seeking a court order compelling Gilman to transfer title in the fixtures to Dayton for $423,023. Gilman counterclaimed alleging Dayton breached the two leases and sought to compel Dayton to participate in the alternative valuation method under the User Lease. Gilman further contended Target never validly renewed the User Lease, and thus could not exercise its right to repurchase the fixtures. Both parties moved for summary judgment. The district court concluded Gilman lacked standing to challenge the price of the fixture repurchase because it was not a party to the User Lease or an intended third-party beneficiary. The district court then denied Gilman's motion for summary judgment and granted Dayton's. This timely appeal followed in which Gilman contends 1) it is a third-party beneficiary of the User Lease; 2) the User and Master Lease are a single, indivisible contract; and 3) Dayton breached the Master Lease by accepting Target's renewal of the User Lease without requiring written notice, and thus Target could not exercise its right to repurchase the fixtures.
We review the district court's grant of summary judgment de novo. Trustees of Graphic Communications International Union Local 1B Health and Welfare Fund "A" v. Tension Envelope Corp., 374 F.3d 633, 635 (8th Cir.2004). "In reviewing the grant of summary judgment, we likewise review de novo the district court's interpretation of unambiguous contract language." Id.
Gilman primarily argues it is a third-party beneficiary of the User Lease, and as such had the right to compel Dayton to participate in the alternative valuation method under the User Lease. We disagree.
Minnesota applies Section 302 of the Restatement (Second) of Contracts to determine whether a party is an intended third-party beneficiary of a contract. See Schoffman v. Cent. States Diversified, Inc., 69 F.3d 215, 217 n. 3 (8th Cir.1995). Subsection one provides:
Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
Subparagraph (a) of section 302(1) has been referred to as setting forth a "duty owed" test, that is, "the promisor's performance under the contract must discharge a duty otherwise owed the third party by the promisee." Cretex Cos., Inc v. Constr. Leaders, Inc., 342 N.W.2d 135, 138 (Minn.1984). Subparagraph (b) has been referred to as setting forth an "intent to benefit" test, that is, "the contract must express some intent by the parties to benefit the third party through contractual performance[.]" Id. We agree with the district court that Gilman does not satisfy either the "duty owed" or "intent to benefit" test with respect to the User Lease and thus was not an intended third-party beneficiary of that contract.
"The intent to benefit test generally requires that `the contract must express some intent by the parties to benefit the third party through contractual performance.'" Norwest Fin. Leasing, Inc. v. Morgan Whitney, Inc., 787 F.Supp. 895, 898 (D.Minn.1992) (quoting Chard Realty, Inc. v. City of Shakopee, 392 N.W.2d 716, 720-21 (Minn.App.1986)). In most cases, "when there is no reference to the third party in the contract, there is no intent to benefit the third party." 614 Co. v. Minneapolis Cmty. Dev. Agency, 547 N.W.2d 400, 410 (Minn.App.1996).
The User Lease did not refer to Gilman, the Master Lease, or the lessor of the Master Lease; in addition, both the Master Lease and User Lease contained integration clauses stating the contractual relationship between the parties to the respective agreements constituted the entire understanding between the parties with respect to the matters set forth therein. Thus, there is a strong inference the parties to the User Lease (Dayton and Target) did not intend to benefit Gilman.
Gilman contends it was an intended beneficiary of the User Lease merely because the User Lease referred to the lessee's (Target's) right to repurchase the fixtures from the lessor (Dayton), who could only obtain title from the lessor of the Master Lease (Gilman). Gilman argues "when both simultaneously created contracts are viewed side by side, the consideration that passes from [Target], then is contractually required to be passed to [Gilman] in return for title." Gilman's Br. at 28-29.
The mere reference to Target's right to repurchase the fixtures and the fact the repurchase would ultimately require title to flow from Gilman through Dayton are not enough to make Gilman an intended third-party beneficiary of the User Lease. Instead, Gilman is merely an incidental beneficiary of the User Lease. For example, when "B contracts with A to buy a new car manufactured by C[,] C is an incidental beneficiary, even though the promise can only be performed if money is paid to C." Restatement (Second) of Contracts § 302(1), illus. 17. Likewise, in this case Target contracted with Dayton to repurchase the fixtures owned by Gilman. Even though that promise can only be performed if Dayton pays money to Gilman, Gilman is nonetheless merely an incidental beneficiary of the agreement between Target and Dayton. Gilman incidentally benefits from the contract between Dayton and Target because it receives money from Dayton for the fixtures. But Gilman is not an intended beneficiary of the contract between Dayton and Target and would not be able to enforce the User Lease in the same way the car manufacturer could not enforce the contract between B and A for the purchase of the car.
...
To continue reading
Request your trial
-
Martin Marietta Materials, Inc. v. Kan. Dep't of Transp.
... ... alleges that KDOT's actions have caused it "financial and economic repercussions beyond [its] ability to supply ... lacked property interest in contract for ambulance services when procedures provided that defendant "may" enter into a ... ...
-
Acosta v. Reliance Tr. Co.
...must express some intent by the parties to benefit the third party through contractual performance." Dayton Dev. Co. v. Gilman Fin. Servs., Inc., 419 F.3d 852, 856 (8th Cir. 2005). "To ascertain the parties' intent, courts look to the surrounding circumstances at the time of the contracting......
-
Macheca Transp. Co. v. Philadelphia Indem. Ins. Co.
...coverage under the “collapse” provisions of the policy. We review the grant of summary judgment de novo. Dayton Dev. Co. v. Gilman Fin. Servs., Inc., 419 F.3d 852, 855 (8th Cir.2005). We also review de novo the district court's interpretation of the insurance policy. Am. Simmental Ass'n v. ......
-
Macheca Transport v. Philadelphia Indem.
...Mr. Horvath as Macheca's counsel. II We review the district court's grant of summary judgment de novo, Dayton Dev. Co. v. Gilman Fin. Servs., Inc., 419 F.3d 852, 855 (8th Cir.2005), as well as its interpretation of the terms of an insurance policy. Am. Simmental Ass'n v. Coregis Ins. Co., 2......