Fourchon Docks, Inc. v. Milchem Inc.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: Before WISDOM, GEE, and JONES; EDITH H. JONES
• Citation: Fourchon Docks, Inc. v. Milchem Inc., 849 F.2d 1561 (5th Cir. 1988)
• Decision Date: 27 July 1988
• Docket Number: No. 87-3342,87-3342
• Parties: FOURCHON DOCKS, INC., Plaintiff-Appellee Cross-Appellant, v. MILCHEM INCORPORATED and Milpark, Defendant-Appellant Cross-Appellee.

Page 1561

849 F.2d 1561

FOURCHON DOCKS, INC., Plaintiff-Appellee Cross-Appellant, v. MILCHEM INCORPORATED and Milpark, Defendant-Appellant Cross-Appellee.

No. 87-3342.

United States Court of Appeals Fifth Circuit.

July 27, 1988.

Donald B. Ensenat, Catherine Maureen Blackburn, New Orleans, La., for defendant-appellant, cross-appellee.

Bernard L. Knobloch, Jr., F. Smith Knobloch, Thibodaux, La., for plaintiff-appellee, cross-appellant.

L. Charles Caillouet, Stephen E. Caillouet, Thibodaux, La., for Caillouet Land Corp.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, GEE, and JONES, Circuit Judges:

EDITH H. JONES, Circuit Judge:

This diversity case involves the breach of an anti-sublease provision in a Louisiana property lease. The district court awarded the accelerated rent as damages for breach, but fixed attorneys' fees considerably less than would have been provided by the lease. Both sides appeal.

BACKGROUND

In 1981, a lease on an unimproved tract of land in LaFourche Parish, Louisiana between Caillouet, Inc., ("Caillouet") as lessor, and Joseph Blanchard, as lessee, was assigned to Fourchon, Inc. ("Fourchon"). With the consent of Caillouet, a portion of this tract was subleased by Fourchon to "Milchem," ¹ a drilling fluids sales and distribution concern. The Fourchon/Milchem sublease contained a provision governing subleases which stated:

Sublessee shall not have the right to assign or sublease the subleased premises, in whole or part, without the prior written consents of Sublessor and the owner, Caillouet Land Corporation, which consent will not be withheld unreasonably.

On February 15, 1986, Milchem subleased the property to Chromalloy Land Corporation ("Chromalloy") without notice to, or the consent of, Fourchon or Caillouet. A week later, Chromalloy cancelled a lease it had entered with Fourchon in 1984 on property adjacent to the site at issue here. Fourchon received notice of the sublease to Chromalloy on March 3 and consequently sent written notice to Milchem of its breach of the Fourchon/Milchem sublease, demanding, as provided in the sublease, that Milchem cure the breach within 10 days. On May 12, Milchem and Chromalloy attempted to secure Fourchon's consent to the sublease. Fourchon refused.

On July 7, Fourchon brought this action in state court, seeking a declaration that the Milchem/Chromalloy sublease was void and damages of $1,080,000, representing the sum of the accelerated rental payments. On July 14, at the request of Fourchon, a writ of sequestration was issued in the state court proceedings to seize movable property located on the sublease property in enforcement of Fourchon's lessor's privilege. The sheriff seized the movables subject to the sequestration by placing a lock on the gate to the property.

By letter dated August 14, 1986, Milchem notified Fourchon that it was terminating the Fourchon/Milchem sublease because Fourchon had evicted Chromalloy by denying it access to the sublease premises. Fourchon informed Milchem that Chromalloy had not been evicted but had instead abandoned the site. Fourchon also at this time affirmed the right of Milchem to occupy the site, and offered Milchem the keys to the property. ²

On August 6, 1986, this action was removed to federal district court. Thereafter Milchem counter-claimed against Fourchon and Caillouet, seeking damages for cancellation of the Fourchon/Milchem sublease. Alternatively, Milchem asked for a declaration that Fourchon and Caillouet had approved the Milpark/Chromalloy sublease.

The district court ruled in favor of Fourchon, awarded damages in the amount of $1,080,000, declared the Milchem/Chromalloy sublease void, ordered that $157,000 of Fourchon's damages be awarded to Caillouet, and awarded attorneys' fees to Fourchon as stipulated in the Fourchon/Milchem sublease. After a subsequent hearing on attorneys' fees, the fee award was reduced to $51,750.00, the "reasonable value" of legal services rendered to Fourchon in connection with this litigation. Both parties appeal.

I. APPEAL OF MILCHEM

Milchem urges that (1) its ex post facto attempts to gain Fourchon's consent to the sublease were sufficient to cure the breach in accordance with the opportunity-to-cure provision in the Fourchon/Milchem sublease; ³ (2) consent by Fourchon to the Milchem/Chromalloy sublease was unreasonably withheld in violation of the Fourchon/Milchem sublease; (3) even if consent was reasonably withheld, acceleration of the rent due under the Fourchon/Milchem sublease was not authorized by the sublease, the proper remedy instead being avoidance of the Milchem/Chromalloy sublease; and (4) although Fourchon may have been legally justified in obtaining a writ of sequestration, the manner in which the writ was executed--by locking the gate to the premises--denied access to the property and thereby dissolved the lease.

A. Fourchon's Refusal to Consent to Milchem/Chromalloy Sublease

The first issue consists of two sub-issues: (1) whether Milchem's efforts to cure the breach were timely and appropriate under the sublease's cure provision, and, if so, (2) whether Fourchon was legally justified in withholding consent to the sublease. ⁴

The cure provision, quoted infra at footnote 3, requires that efforts to cure any breach other than a failure to pay rent must at least be commenced within 10 days of the sublessor's written notice of the claimed breach. Milchem, however, attempted no curative action until long after the cure period expired. ⁵

Not only was the attempt to cure untimely, it was also undertaken by inappropriate means. As the district court stated, allowing a post-breach effort at obtaining approval of a sublease to suffice as a cure would render meaningless the sublease's advance approval requirement. Milchem urges that seeking consent ex post facto was its only means of cure, the denial of which essentially removes the opportunity-to-cure provision from the sublease. This assertion is erroneous. The cure provision is fully applicable to numerous possible breaches of the lease besides this one. Moreover, Milchem could have terminated its sublease agreement or sought a judicial declaration that the sublease was void in order to bring itself back into compliance with the contract. Thus, the failure of Milchem's curative efforts is simply a matter of too little, too late.

Additionally, the district court's determination that Fourchon did not unreasonably refuse to consent was not incorrect. Section 2725 of the Louisiana Civil Code allows a lessor to prohibit subleasing in these terms:

The lessee has the right to underlease, or even to cede his lease to another person, unless the power has been expressly interdicted.

The interdiction may be for the whole, or for a part; and this clause is always construed strictly.

In Illinois Cent. R. Co. v. International Harvester, 368 So.2d 1009, 1013 (La.1979), the Louisiana Supreme Court, interpreting this language, stated:

The article is not clear as to whether a clause expressly interdicting the lessee's right to sublease is to be construed strictly for or against the lessee. However, this Court has said that "[t]he language is taken literally from the Napoleon Code; and the interpretation which it appears to have uniformly received in France ... is that the prohibition must be construed strictly against the lessee." Cordeviolle v. Redon, 4 La.Ann. 40 (1849) [emphasis added].

More recently, the state Supreme Court has qualified Illinois Central, holding that, "when a lease contains the additional proviso that the lessor's consent may not be unreasonably withheld, the lessor's right to refuse will be judicially protected unless the lessor's refusal was unreasonable." Truschinger v. Pak, 513 So.2d 1151--(La.1987), citing Caplan v. Latter & Blum, 468 So.2d 1188 (La.1985). ⁶

The district court found three reasonable bases for withholding consent to the sub-sublease: (1) the economic loss resulting to Fourchon from Chromalloy's termination of its lease on adjoining property; (2) Chromalloy's unwillingness, at the request of Fourchon, to delineate the specific activities to be conducted on the premises; and (3) the possible property devaluation resulting from a short-term sublease. We agree with the district court that taken together Fourchon had reasonable grounds for denying its consent. ⁷ Consequently, the district court's finding that consent was not unreasonably withheld is not clearly erroneous.

B. Acceleration of Rent

The district court found that Milchem breached the Fourchon/Milchem sublease both by failing to obtain consent for the Milchem/Chromalloy sublease and by ceasing its rental payments as of August 1, 1986. ⁸ However, the court's acceleration of the rent for the remainder of the rental term appears to have been based solely on the nonpayment of rent. Milchem urges that the district court erred in ordering acceleration because (1) Fourchon unreasonably withheld consent and therefore Milchem's actions did not constitute a breach of the sublease, or, alternatively, (2) even if consent was not unreasonably withheld, acceleration was improper because the ineffective cure would have rendered the Milchem/Chromalloy sublease void, which would have resulted "automatically" in the cure of the Fourchon/Milchem contract. ⁹ Milchem's first argument is unavailing because we have found that approval was not unreasonably denied. Its second argument fails because even if the Milpark/Chromalloy sublease was ineffectual, Milchem's execution of the sublease still constitutes a breach of its sublease with Fourchon. Holding otherwise would endorse an absurd proposition: that violating an anti-sublease provision would never constitute a breach. Furthermore, Milchem's nonpayment of rent is an additional and independent justification for acceleration of the rental payments. The district court did not err in authorizing acceleration of...