Nankin v. Beverly Enterprises Wisconsin, Inc.
| Decision Date | 24 September 1991 |
| Docket Number | No. 91-C-623.,91-C-623. |
| Citation | 774 F. Supp. 540 |
| Parties | Armin H. NANKIN and William C.P. Hoffmann, Plaintiffs, v. BEVERLY ENTERPRISES-WISCONSIN, INC., a foreign corporation, Defendant. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Brian W. McGrath, Foley & Lardner, Milwaukee, Wis., for plaintiffs.
Brian C. Tyndall, Cook & Franke, Milwaukee, Wis., for defendant.
On July 29, 1991, this Court ordered the plaintiffs, Armin Nankin ("Nankin") and William Hoffmann, to pay into court pendente lite $280,590, the amount of the security deposit which had been given to them nine years and six months ago by the defendant, Beverly Enterprises ("Beverly"). Now before the Court is the plaintiffs' motion to partially vacate the July 29 order and to return the $280,590 in the court account to the plaintiffs.
On January 1, 1982, the plaintiffs and Beverly entered into a 10-year lease under which Beverly, the lessee, would run a nursing home out of the plaintiffs' property. Beverly paid $280,590 to the plaintiffs as a condition of the lease; this amount was a security deposit which was to be returned in July, 1991 absent any default by the defendant (Lease, ¶ 5). The lease called for a base rent of $46,765 per month. Due to the length of the lease, the subsequent rents were to be adjusted on a yearly basis pursuant to a specific formula. Unfortunately, the complexity of that formula made it difficult for the plaintiffs and the defendant to agree upon a precise dollar figure, and the contractual "agreement" between the two parties was fraught with conflict and uncertainty.
In January of 1989, Nankin and Beverly reached a settlement regarding the rent due up through May of 1988. However, the plaintiffs claim that Beverly has only been paying a portion of the rent that is owed to them under the lease since June 1, 1988. Beverly insists that the rent it has been paying is the proper amount.
The plaintiffs filed a motion for eviction and damages in state court on June 6, 1991 which Beverly subsequently removed to this Court pursuant to 28 U.S.C. § 1441(a). The plaintiffs moved this Court to bifurcate the issues so they could first evict Beverly swiftly and then prove up their damages at trial. The Court denied the plaintiffs' request for separate hearings, since the eviction and damages issues were too intertwined to bifurcate.
At the next status conference on July 16, the plaintiffs moved for an early trial date. Since eviction constituted part of the relief for which they were arguing, they requested a date before the end of the year, at which time the lease would expire. The Court was unable to grant this request, since there was no room on its calendar to schedule that trial until after the new year. Then the parties moved together for an expedited ruling on Beverly's motion to pay rent into court pendente lite, which had been filed and answered before the conference.
In its motion, Beverly expressed concern that its security deposit would not be returned. A representative of Beverly had stated that Nankin told him that if Beverly did not reach a renewal agreement with the plaintiffs, the plaintiffs would keep Beverly's security deposit as past rent due (Affidavit of James Pietrzak, ¶ 2). Since no renewal agreement was reached, Beverly assumed that the plaintiffs were planning on keeping the security deposit and applying it toward the alleged actual and projected deficiencies in the rent (Affidavit of Brian Tyndall, ¶ 10). As a result, Beverly contended that paying the plaintiffs a monthly rent while they were also in possession of the security deposit, which arguably should have been returned, would result in a windfall for the plaintiffs, one to which they were not entitled under the lease. It suggested, as an alternative to paying rent directly to the plaintiffs, that the accumulated rents in the holding account be paid back as the security deposit once litigation had ended. The plaintiffs would then be free to use the security deposit they were already retaining in lieu of rent.
The plaintiffs opposed Beverly's motion, arguing first that Beverly had an obligation to pay at least whatever rent it believed it owed to the plaintiffs while it was still in possession of the premises; and second, that Federal Rule of Civil Procedure 67, which the defendant had cited in support of its motion, was not applicable to the present circumstances. Rule 67 may be invoked by a party in an action who holds a sum of money that is in dispute. The plaintiffs stated that there was no dispute over whether Beverly owed the amount of rent it planned to pay; rather, the question was whether it owed more. Since Beverly admitted to owing at least that amount, it would be unfair to deprive the tenants of the steady stream of income for which they had contracted.
On July 29, this Court denied Beverly's motion and ordered it to continue to pay rent directly to the plaintiffs. However, Beverly's argument addressing the security deposit, which was not refuted by the plaintiff, was compelling enough for this Court to respond to its concerns and order the plaintiffs to pay the entire security deposit into a court account pendente lite. In effect, the Court was enforcing the lease to the extent it could be enforced. Since the plaintiffs are currently receiving most of the rent to which they would have been entitled under their version of the lease, and the defendant is paying what it believes to owe under the lease, allowing the plaintiffs to keep money that would have had to be returned under the lease would indeed result in a windfall for them. However, Beverly may not claim this money as its own until it prevails at trial, successfully refuting the plaintiffs' allegations of default. The ownership of the security deposit will remain undetermined until one of the parties becomes entitled to it in February of 1992;1 at that time, the money and its interest will be readily accessible to whichever party has rights in it and can be distributed with minimal expense and delay.
The July 29 order drew criticism from the plaintiffs, who objected to this Court's "sua sponte" action in depriving them of their property without due process. According to them, this Court granted Beverly either a prejudgment attachment or a preliminary injunction, neither of which was requested by the defendant. Moreover, this taking without notice to the plaintiffs resulted in a violation of their due process rights.
Beverly countered this construction of the Court's order by deeming the holding account "an appropriate exercise of the court's discretion under Rule 67." (Response Brief at 4). It provided further support by referring to the Court's inherent powers, which are not strictly defined and limited by the Federal Rules of Civil Procedure. It concluded that the Court did not exceed its authority in ordering the plaintiffs to pay the security deposit into an account pendente lite.
Disputes involving commercial leases are traditionally resolved in state court. This Court, however, has proper jurisdiction over the present action pursuant to 28 U.S.C. §§ 1332(a) and 1441(a). Moreover, it is well settled that even though federal courts are courts of law, they are permitted to grant equitable relief. The Supreme Court has encouraged district courts to "do equity and to mould each decree to the necessities of the particular case." Porter v. Warner Holding Company, 328 U.S. 395, 398, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332 (1946). A court's equitable jurisdiction is broadly construed and may be circumscribed only by "clear and valid legislative command" or "a necessary and inescapable inference" in a restrictive statute. Id.
Equity may be defined as a "rejection of rigid rules to accomplish what is fair and just in a particular situation." State of Illinois by the Illinois Department of Public Aid v. Heckler, 616 F.Supp. 620, 622 (D.C.Ill.1985) (emphasis added). Rule 1 of the Federal Rules of Civil Procedure states that the Rules "shall be construed to secure the just, speedy, and inexpensive determination of every action." (emphasis added). It is clear that the interests of fairness and justice are at the core of this Court's authority and that the Court must act upon these mandates when they do not contravene obvious limitations on its power.
In its Order of July 29, 1991, this Court did not cite to any state or federal authority for its ruling, choosing instead to exercise its inherent powers mandated by the Constitution, the Federal Rules of Civil Procedure, and ironically, the plaintiffs' complaint at ¶ 6 where they requested "such other further legal or equitable relief as the Court deems just and proper." Although the plaintiffs and the Court are obviously not in accord as to what is actually "just and proper," the fact remains that the Court may use its discretion and sense of fairness throughout this proceeding to grant whatever type of relief it deems...
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