Terra Venture, Inc. v. Jdn Real Estate-Overland

• Decision Date: 07 April 2006
• Docket Number: No. 04-3492.,04-3492.
• Citation: 443 F.3d 1240
• Parties: TERRA VENTURE, INC.; Terra Venture Realty, Inc., Plaintiffs-Appellants, v. JDN REAL ESTATE-OVERLAND PARK, L.P., a Georgia Limited Partnership; JDN Realty Corporation, a Georgia corporation; JDN Development Company, Inc., a Delaware corporation; Belle Meade Acquisition Corporation, a Georgia corporation; Developers Diversified Realty Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

443 F.3d 1240

TERRA VENTURE, INC.; Terra Venture Realty, Inc., Plaintiffs-Appellants, v. JDN REAL ESTATE-OVERLAND PARK, L.P., a Georgia Limited Partnership; JDN Realty Corporation, a Georgia corporation; JDN Development Company, Inc., a Delaware corporation; Belle Meade Acquisition Corporation, a Georgia corporation; Developers Diversified Realty Corporation, Defendants-Appellees.

No. 04-3492.

United States Court of Appeals, Tenth Circuit.

April 7, 2006.

COPYRIGHT MATERIAL OMITTED

William M. Modrcin (Erin N. Schmidt with him on the briefs), Stinson Morrison Hecker LLP, Kansas City, MO, for Plaintiffs-Appellants.

Robert W. Tormohlen (Leland H. Corley with him on the brief), Lewis Rice & Fingersh, L.C., Kansas City, MO, for Defendants-Appellees.

Before LUCERO, McKAY, and McCONNELL, Circuit Judges.

McKAY, Circuit Judge.

This lawsuit concerns the division of labor and capital associated with 100 acres of undeveloped property in Overland Park, Kansas. Originally, Plaintiffs entered into an agreement to purchase this plot of land from a company called Ranch Mart, Inc. However, before closing with Ranch Mart, Plaintiffs entered into an agreement with Defendants whereby Plaintiffs assigned their rights and interests in the land to Defendants ("Assignment Agreement"). Plaintiffs conveyed all of their rights in the land to Defendants, and Defendants became the owners of the property.

The plan was to develop the land as commercial real estate. Plaintiffs signed an additional agreement with Defendants which appointed Plaintiffs as the exclusive selling and leasing agent for the project, paid to Plaintiffs a $300,000 development fee, and offered a conditional earnout fee to Plaintiffs, payable only if the project achieved certain profits levels ("Fee Agreement"). Defendants paid the development fee to Plaintiffs, reimbursed Plaintiffs for pre-development expenses, and paid Plaintiffs in excess of $250,000 in market commissions on sales and leases of property within the project.

Notably, the Fee Agreement indicated that the project should be referred to as a "joint venture" of Plaintiffs and Defendants in "press releases in industry and financial publications. . . ." Memorandum and Order, 6 (D.Kan. Oct. 14, 2004). The Fee Agreement also contained several "Miscellaneous" clauses, including the following:

8.e. This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof, and no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein or incorporated herein by reference shall be of any force or effect. 8.g. No amendment to this Agreement shall be binding on any of the parties hereto unless such amendment is in writing and is executed by the party against whom enforcement of such amendment is sought.

8.h. Time is of the essence of this Agreement.

Id. (emphasis added).

Plaintiffs claim that they were led to believe, through oral representations, that Defendants would develop the property and that the construction period would last about one year. See Id. at 7. It is uncontroverted, however, that the Fee Agreement contained no express provision requiring Defendants to develop the property at all, much less within a finite time. Nonetheless, Defendants did take on the development and construction of the property. The project suffered numerous delays, some of which might have been caused when the Securities and Exchange Commission forced the CEO of one of Defendant companies to resign. At present, there are several retailers and businesses located on the property.

Plaintiffs maintain that Defendants were expressly obligated to develop this property within a finite time and that their failure to adequately perform breached both their contractual and fiduciary duties. Plaintiffs argue that they are also owed for leasing commissions and an accounting.

The district court granted summary judgment for Defendants on all claims, and it is from this judgment which Plaintiffs now appeal. The district court properly applied Kansas law to this diversity jurisdiction case.

We review grants of summary judgment de novo, "applying the same legal standard used by the district court." Cirulis v. UNUM Corp., 321 F.3d 1010, 1013 (10th Cir.2003). Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." In order to determine whether the case presents any issue of material fact, "we view the evidence and draw all reasonable inferences therefrom in the light most favorable to the party opposing summary judgment...." Martin v. Kansas, 190 F.3d 1120, 1129 (10th Cir. 1999). "A fact is `material' if, under the governing law, it could have an effect on the outcome of the lawsuit," and "[a] dispute over a material fact is `genuine' only if a rational jury could find in favor of the nonmoving party on the evidence presented." Sports Unlimited, Inc. v. Lankford Enters., Inc., 275 F.3d 996, 999 (10th Cir. 2002). To avoid summary judgment, the nonmovant must make a showing sufficient to establish an inference of the existence of each element essential to the case with respect to which that party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 321, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Foster v. Alliedsignal, Inc., 293 F.3d 1187, 1192 (10th Cir.2002). Further, we may "affirm a grant of summary judgment on grounds other than those relied on by the district court when the record contains an adequate and independent basis for that result." Bones v. Honeywell, Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).

Plaintiffs argue that the district court erred in determining that Defendants had no duty to develop the property. Our review of the record supports that no provision in the Fee Agreement or Assignment Agreement obligated Defendants to develop the property. Where, as here, a contract is unambiguous, we will not, under the guise of contract interpretation, write a new contract for the parties to achieve some perceived equitable result for which the parties themselves did not bargain. Meiners v. Univ. of Kan., 239 F.Supp.2d 1175, 1199 (D.Kan.2002), aff'd, 359 F.3d 1222 (10th Cir.2004); Wood River Pipeline Co. v. Willbros Energy Servs. Co., 241 Kan. 580, 738 P.2d 866, 871 (1987) ([W]ords cannot be written into the agreement imparting an intent wholly unexpressed when it was executed.).

In addition, the Fee Agreement contained a clause that expressly limited any oral representations or "understandings" from being given force or effect. See Memorandum and Order, 6. Therefore, while in instances where the contract is unambiguous and we determine the meaning of the contract exclusively from the document itself, we are even more firmly bound here by a clause which expressly prohibits incorporating verbal representations into the contract.

Plaintiffs also point to the "time is of the essence" provision in paragraph 8(h) of the Fee Agreement to suggest that it reflect the parties' intention that Defendants develop the project in a "timely" manner. This suggestion misses the mark: the "time is of the essence provision" applies only to obligations actually created in the Fee Agreement, not to nonexistent terms. As the Second Circuit explained:

A "time is of the essence" clause in a contract does not in itself ordinarily impose an independent time constraint on one or both of the parties to the contract. Its commonly understood meaning is that insofar as a time for performance is specified in the contract, failure to comply with the time requirement will be considered to be a material breach of the agreement.

Retrofit Partners I, L.P. v. Lucas Indus., Inc., 201 F.3d 155, 160 (2d Cir.2000).

Alternatively, Plaintiffs claim that having once begun developing the property, Defendants assumed a duty to continue under the implied covenant of good faith and fair dealing.

[I]n order to prevail on an implied duty of good faith and fair dealing theory under Kansas law, plaintiffs must (1) plead a cause of action for breach of contract, not a separate cause of action for breach of duty of good faith, and (2) point to a term of the contract which the defendant allegedly violated by failing to abide by the good faith spirit of that term.

Wayman v. Amoco Oil Co., 923 F.Supp. 1322, 1359 (D.Kan.1996) (internal quotations omitted). "The implied covenant is derivative in nature in that it does not create or supply new contract terms, but it grows out of existing ones." Kindergartners Count, Inc. v. DeMoulin, 249 F.Supp.2d 1233, 1243 (D.Kan.2003); Bank IV Salina, N.A. v. Aetna Cas. & Sur. Co., 810 F.Supp. 1196, 1204 (D.Kan.1992) ("The duty of good faith assumes the existence of a contractual right; it does not create one."). We agree with the district court that, because "the Fee Agreement did not impose an obligation for Defendants to develop the land, such an obligation cannot be created through application of the implied covenant." Memorandum and Order, 19.

Plaintiffs have attempted to make an impossible and impermissible leap from the parties' understanding that Defendants might develop the project to the creation of an express provision obligating Defendants to develop the project within a specific time. We cannot conclude that Defendants' failure to develop the property at a particular rate of time breached any contract provision.

Plaintiffs next argue that Defendants breached their fiduciary duty by failing to develop the property in a timely manner. Under Kansas law, "[a] fiduciary relation . . . exist[s] in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to the...