Petula Associates Ltd v. Dolco Packaging Corp., 99-11375

• Decision Date: 12 February 2001
• Docket Number: No. 99-11375,99-11375
• Citation: 240 F.3d 499
• Parties: (5th Cir. 2001) PETULA ASSOCIATES, LTD., Plaintiff-Counter Defendant-Appellant-Cross Appellee, v. DOLCO PACKAGING CORPORATION, Defendant-Counter Claimant-Appellee-Cross Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

Page 499

240 F.3d 499 (5th Cir. 2001)

PETULA ASSOCIATES, LTD., Plaintiff-Counter Defendant-Appellant-Cross Appellee, v. DOLCO PACKAGING CORPORATION, Defendant-Counter Claimant-Appellee-Cross Appellant.

No. 99-11375

UNITED STATES COURT OF APPEALS, Fifth Circuit

February 12, 2001

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

Before DAVIS and EMILIO M. GARZA, Circuit Judges, and POGUE, Judge^*.

POGUE, Judge:

Petula Associates, Ltd. ("Petula") appeals the district court's grant of final judgment and its grants of summary judgment in favor of Dolco Packaging Corporation ("Dolco"). Petula had filed suit in Texas state court, whereupon Dolco removed the case to the United States District Court for the Northern District of Texas, Dallas Division, asserting diversity jurisdiction pursuant to 28 U.S.C. §§ 1332, 1441. The district court heard motions on summary judgment from both parties, and ruled in favor of Dolco in two separate opinions and orders dated February 23, 1998, and March 30, 1999. The district court entered its final judgment on December 3, 1999, following which Petula filed a timely notice of appeal to this Court. Dolco cross-appeals one of the district court's rulings. For the reasons discussed below, the Court REVERSES-IN-PART and AFFIRMS-IN-PART, and VACATES the district court's award to Dolco of an equitable accounting and attorneys' fees, WITHOUT PREJUDICE as to the attorneys' fees. Dolco's cross-appeal is DISMISSED AS MOOT. This case is REMANDED for judgment consistent with this opinion.

Factual Background

This suit arose from a dispute regarding a purchase option contained in a lease agreement ("the lease") on a property located in Dallas, Texas ("the property"). In December, 1985, Petula leased a commercial building to Dolco for a fifteen-year term. The lease was amended twice. The lease provided both a renewal and a purchase option for Dolco. In Paragraph 43 of the lease, Dolco was afforded the opportunity to purchase the property for the set price of $4,833,128.16, plus costs, during the first five years of the lease, or for the "fair market value" during the next five years of the lease. In November, 1990, however, the purchase option and rental payment provisions of the lease were altered due to Dolco's reorganization. While the period for purchasing the property at the set price was re-started (it now expired at 12:00 a.m. on August 1, 1996), the "fair market value" option period was shortened from five years to five days after the first option expired. Further, Dolco's rental payments were graduated, so that Dolco would pay reduced rents in the first five years of the amended lease, with the reduction to be made up by increased rents thereafter.

According to both the original and the amended lease, the "fair market value" of the property was to be determined in accordance with the valuation procedure outlined in Paragraph 28 of the lease. Pursuant to Paragraph 28, the parties were first required to attempt to reach agreement on the "fair market value" of the property. If those negotiations failed, the parties were each required to select an appraiser to value the property; the average of the appraisers' estimates would constitute the "fair market value" of the property. If, however, the appraisers' valuations differed by more than ten percent, the appraisers were to select a third appraiser to value the property.

In accordance with the lease purchase provision, Dolco informed Petula on August 1, 1996, of its intent to exercise its option to purchase the property for "fair market value." The parties were, however, unsuccessful in their attempt to reach an agreement regarding the "fair market value" of the property. As a consequence, each party hired an appraiser to value the premises. Dolco's appraiser determined that the property should be valued without regard to the lease, and therefore valued the property at $2.75 million. Petula's appraiser determined that the term "fair market value" should include the value of the lease, and therefore appraised the property at $5.15 million. Because of the divergence in the appraiser's valuations, a third appraiser was selected. The third appraiser, however, recused himself before valuing the property.

After the third appraiser withdrew, Petula refused to allow another appraiser to be appointed, and instead filed a declaratory judgment action in Texas state court. Dolco removed the case to federal district court, and requested summary judgment. The questions before the court were whether Dolco caused the third appraiser to withdraw, and whether the lease should be considered in determining the "fair market value" of the property. The district court held that Dolco's actions with regard to the appraiser did not constitute a breach of the lease, and thus that Dolco was entitled to specific performance of the lease.¹ In addition, the district court ordered that another appraiser be appointed, and that the factors in Paragraph 28 controlled whether the lease should be considered in determining the fair market value of the property. Because the lease was not listed as a factor in Paragraph 28, the court determined that the lease should not be included in the valuation. On June 18, 1998, a new appraiser determined that the property was worth $3 million,² and thereafter Dolco requested a closing date.

Prior to the proposed closing date, Dolco informed Petula that the lease required Petula to provide a warranty deed free of liens or encumbrances at closing. Petula, however, argued that pursuant to Paragraph 43(D) of the lease, it could tender the property subject to its first lien mortgage of $3.8 million. Thereupon Dolco filed a summary judgment motion arguing that Petula could not encumber the property, and that Dolco should receive an equitable accounting and attorneys' fees. Petula filed a cross-motion for summary judgment arguing that Paragraph 43(D) allowed the property to be encumbered by the lien, and that because of the non-recourse provision in the lease, Dolco was not entitled to an equitable accounting or attorneys' fees.

The district court held that Petula's interpretation of Paragraph 43(D) was incorrect, and that Petula could not transfer the property subject to the lien because Petula did not have positive equity in the property. Further, the district court granted Dolco's request for attorneys' fees because the court found that Paragraph 38 of the lease contemplated the assessment of attorneys' fees. The court also granted Dolco's request for an equitable accounting for the rents paid by Dolco from July 18, 1998, forward. Although Dolco had requested an accounting from December 1, 1996, or one month after the original third appraiser resigned, the court determined that July 18, 1998, was the appropriate date, because that was date on which the closing should have occurred following the June 18, 1998, appraisal.

Petula appeals three of the district court's holdings: first, that the lease should not be considered in determining the "fair market value" of the property; second, that Petula may not transfer the property to Dolco subject to the existing first lien mortgage; and third, that Petula may be held liable to Dolco for an equitable accounting and attorneys' fees. Dolco appeals the district court's decision to start the equitable accounting period on July 18, 1998, rather than on December 1, 1996, as Dolco had requested.

Standard of Review

This suit involves the interpretation of terms included in the lease. Because the suit was brought under diversity jurisdiction, the district court applied Texas law regarding contract interpretation. Under Texas law, summary judgment may be granted if the terms of a contract are not ambiguous, such that they "can be given a certain or definite legal meaning or interpretation." Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). In the present case, the district court concluded, and the parties did not dispute, that the provisions of the lease are unambiguous. The district court then granted summary judgment in favor of Dolco regarding the interpretations of the phrase "fair market value," the provisions governing how the purchase price for the property should be paid, and the provisions limiting Petula's personal liability under the lease. We review the district court's conclusions de novo. See EEOC v. Boeing Services Int'l, 968 F.2d 549, 553 (5th Cir. 1992).

Discussion

I. Fair Market Value

Paragraph 28 of the lease provides in relevant part:

In determining the "prevailing fair market rate" or "fair market value" for the purposes of a provision in the lease, such rate or value shall be the rate or value, as the case may be, which Landlord and Tenant shall mutually agree upon, considering like premises in the Dallas, Texas area, of the same quality and age of the building and also considering the length of the renewal term then under consideration (as to fair market rate), and the quality, utility and location of the space involved.

Texas courts have consistently defined "fair market value" broadly to mean the price a piece of property would receive on the open market if the seller and buyer were not compelled to enter into the transaction. See State v. Windham, 837 S.W.2d 73, 77 (Tex. 1992)(quoting State v. Carpenter, 126 Tex. 604, 89 S.W.2d 194, 202 (Tex. 1936))(fair market value is "'the price which the property would bring when it is offered for sale by one who desires, but is not obligated to sell, and is bought by one who is under no necessity of buying it'"). Consequently, when the term "fair market value" is used in a contract governed by Texas law, it may be presumed that the parties intended the term to be understood according to this meaning, absent a clear indication to the contrary. See Restatement (Second) of Contracts § 202 (3)(a) (1981). As such, we agree with the district court that the term "fair market value" is not ambiguous.

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