Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ared-5_04-cv-00236/USCOURTS-ared-5_04-cv-00236-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

PINE BLUFF DIVISION

DAVID R. POWELL, SR. PLAINTIFF

v. No. 5:04CV00236 GH

TPI PETROLEUM, INC. DEFENDANT

ORDER

On June 21, 2004, plaintiff filed suit, pursuant to diversity jurisdiction, for breach of contract

and conversion arising out of the removal by defendant of underground storage tanks and piping

from the leased property used as a convenience store and retail automotive fuel facility. Defendant

filed an answer and counterclaim on July 13, 2004, for declaratory judgment and breach of contract

under the same lease agreement.

Defendant filed a motion for summary judgment on March 25th supported by brief, exhibits,

and a separate statement of undisputed facts. It contends that it is entitled to summary judgment as

a matter of law because the fuel system removed from the leased property during environmental

remediation was permitted to be severed and removed under the lease agreement and because it was

a trade fixture and not a real estate fixture. Defendant asserts that the uncontroverted evidence

shows that the furl system at the Dumas store was installed by its predecessor-in-interest with the

full intention to retain ownership and control over the fuel system at the time of its installation and

throughout the lease term; that the fuel system was installed solely for the operation of the business

at the Dumas store; that the lease agreement specifically contemplated the severance and removal

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of the fuel system during or within 30 days of lease termination; and that the fuel system was

properly a trade fixture and not a real estate fixture as defined by Arkansas law thereby permitting

its removal. It continues that, as plaintiff drafted key language in the lease, any ambiguity must be

construed against him and the Court should consider that plaintiff has never registered as an owner

of the tanks at the Dumas store as required by Ark. Code Ann. §8-7-813(a) and Regulation 12 of the

Arkansas Pollution Control and Ecology Commission and having registered other underground tanks

with the State although defendant had registered the tanks as the owner of the fuel system.

Also on March 25th, plaintiff filed a motion for partial summary judgment supported by brief

with a statement of undisputed facts and exhibits. He seeks judgment that the underground storage

tanks removed from the real property by defendant constituted fixtures to plaintiff’s real property

as a matter of law; that because the underground storage tanks and piping were real estate fixtures

they became the property of the plaintiff upon the termination of the lease; that defendant’s removal

of the underground storage tanks and piping was a breach of the lease because defendant failed to

return to the landlord the land and premises leased with the improvement thereon in as good

condition as the same were in when the lease began; that defendant’s removal of the underground

storage tanks constitutes conversion, and that plaintiff is entitled to recover reasonable attorney’s

fees incurred in bringing this action pursuant to the lease.

Defendant responded to plaintiff’s motion on April 6th stressing that the primary factor in

evaluating fixtures is the annexing party’s intent and here there is significant evidence that Road

Runner and later defendant intended to maintain ownership and control of the fuel system. It

continues that the case mainly relied upon by plaintiff is inapplicable as it involved a claim by a

third-party supplier for equipment installed on an owner’s property by the tenant, the lease language

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is different as this lease uses the term sever which contemplated the removal of items from the

property after those items became attached to the real estate, and the lease agreement not only lists

certain items that can be removed but “other [sic] any part of same” and all have indicated that the

entire fuel system is considered a single unit. Defendant further argues that intervening statutes and

environmental regulations since 1984 have made it impossible to return the property to the “same

condition”and the parties did not contemplate a change in the law. Defendant filed its response to

plaintiff’s statement of facts on April 14th.

On April 7th, plaintiff responded to defendant’s motion as well as its statement of facts. He

argues that the lease is not ambiguous and, even if it were, the Court could not apply extrinsic

evidence at this stage. Plaintiff insists that the Arkansas appellate court has ruled as a matter of law

that storage tanks are real estate fixtures where they could not be removed without serious injury to

the realty and the requisite intent was supplied by the terms of the lease under review and not

defendant’s subjective intent. He continues that while storage tanks were specified in what could

be installed, they were not listed in the removal paragraph. Plaintiff also contends that Road Runner

was the original drafter and that he negotiated changes that were approved by Road Runner’s two

lawyers.

Summary judgment can properly be entered when there are no genuine material facts that

can be resolved by a finder of fact; that is, there are no facts which could reasonably be resolved in

favor of either party. The Court must determine “whether the evidence presents a sufficient

disagreement to require submission to a jury or whether it is so one-sided that one party must prevail

as a matter of law.” Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505, 2512 (1986). The nonmoving party may not just rest upon his or her pleadings, but must set forth specific facts showing

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that there is a genuine issue for trial. Celotex Corp. v. Catrett, 106 S.Ct. 2548 (1986); Civil

Procedure Rule 56. “The mere existence of a factual dispute is insufficient alone to bar summary

judgment; rather the dispute must be outcome determinative under prevailing law.” Holloway v.

Pigman, 884 F.2d 365, 366 (8th Cir. 1989).

Local Rule 56.1 provides that a party moving for summary judgment must file a separate,

short and concise statement of material facts as to which it contends there is no genuine issue to be

tried. The rule further provides that unless the non-moving party files a separate, short and concise

statement of the material facts as to which it contends a genuine issue exists to be tried, all material

facts set forth in the moving party’s statement will be deemed admitted.

Plaintiff’s Local Rule 56.1 statement is set out below with defendant’s response contained

in brackets:

1. Plaintiff, David R. Powell, Sr., in an Arkansas citizen and resident of McGee, Desha County,

Arkansas. [Admitted. However, TPI does not believe this is a material fact.]

2. Defendant TPI Petroleum, Inc. (“TPI”) is a Michigan corporation with its principal office

in San Antonio, Texas. [Admitted. However, TPI does not believe this is a material fact.]

3. The Lease attached as Exhibit A to plaintiff’s complaint is a true and correct copy of the

lease at issue in this lawsuit. [Admitted, however, TPI would also assert that the Lease

agreement, in addition to different fonts and typesetting beginning on page 6, also contains

different paper sizes beginning on page 6.]

4. TPI is the successor in interest to Road Runner Properties. At the time of the termination

of the lease, TPI was the responsible party under the Lease as the successor in interest to the

Lessee. [Admitted.]

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5. Plaintiff David R. Powell is the owner of the real property relevant to this lawsuit, and is the

successor in interest to Mr. Drexell Powell (plaintiff’s deceased father), who was the original

landlord and signatory to the Lease. [Admitted.]

6. The Lease remained in force and effect until it was terminated at the end of the Lease term

(after multiple renewals) on March 31, 2003. Just prior to the date of Lease termination in

March 2003, TPI removed from the leasehold property the existing underground storage

tanks and associated piping used to store and dispense motor fuels for the retail fuel

operation. [Admitted.]

7. A fuel dispensing system (including underground storage tanks) is necessary for the

operation of a retail automotive fuel facility. [Admitted.]

8. At the time Road Runner, TPI’s predecessor-in-interest, took over the leasehold, a Gulf

service station was operated on the property. The Gulf station included four 3,000-gallon

underground fuel tanks and a 560-gallon waste oil tank. [Admitted.]

9. When Road Runner took over the leasehold, it remodeled and added on to the existing Gulf

service station, removed the existing underground storage tanks, and installed four 10,000-

gallon underground storage tanks and new underground piping. [Admitted.]

10. The underground storage tanks installed by Road Runner, and later removed by TPI, were

buried under several feet of soil, connected to underground piping leading to fuel pumps, and

covered with concrete paving. [Admitted.]

11. Prior to the time that TPI removed the underground storage tanks, Plaintiff David Powell

informed TPI of his position that the underground storage tanks were real estate fixtures and

part of the leasehold. [Admitted.]

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12. The leasehold property cannot be operated as a retail fuel facility without fuel storage tanks.

[Admitted.]

Defendant’s Local Rule 56.1 statement is set out below with plaintiff’s response contained

in brackets:

1. TPI is the successor-in-interest to the lease agreement executed between Drexel Powell and

Road Runner Properties. [Admitted.]

2. Road Runner Properties leased the real property subject to the lease agreement for the

operation of a convenience store business. [Admitted.]

3. The lease agreement authorized the installation of trade fixtures, including underground

storage tanks, associated piping, pumps, compressors and other machinery necessary for a

fuel dispensing system to be used to sell gasoline and diesel products to customers of the

convenience store business at the leased property. [Disputed . The lease does not refer to

“trade fixtures” in any provision. This is TPI’s characterization or argumentative application

of law to facts and is not appropriate in a statement of undisputed facts. Powell admits that

in Lease paragraph 3.01 the Lease contains this language:

3.01. Use of Premises. Tenant shall have the right from time to time, as it

may desire, to build or rebuild such buildings, structures, drives and pump

islands, and to install such storage tanks, pumps, lifts, hoists, and other

equipment; and to make such other installations and constructions as it deems

proper for sale and distribution of petroleum products, automobile

accessories and/or as a convenience store for the sale of food stuffs upon the

premises and to construct means of ingress to and egress from the same.

Tenant agrees to comply with all health, safety, and sanitary laws and

regulations pertaining to the demised premises.]

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4. After execution of the lease agreement, TPI’s predecessor-in-interest installed four (4) ten

thousand gallon underground storage tanks, associated piping, pumps and other machinery

necessary for dispensing fuel to customers of the convenience store business. [Admitted.]

5. The only purpose of the installation of the fuel dispensing system was for the operation of

the business. [Admitted.]

6. Road Runner, at all times during the lease term, intended to maintain ownership of, control

over, and responsibility for the fuel dispensing system, including the underground storage

tanks, associated piping, pumps, and other parts of the fuel dispensing system. [Disputed.

The best, and only objective, indication of Road Runner’s intent is the language of the Lease

itself. The lease requires that real property improvements become the property of Landlord.

See paragraph 3.02 (“All such buildings, structures and improvements placed upon the

leased premises by Tenant during the continuance of said Lease of the kind and character

normally deemed in law to become a part of the realty, shall be and remain the property of

Landlord ....”). Powell admits that TPI was required by the lease to maintain responsibility

for and control over the underground storage tanks in all respects during the lease term. See

Lease paragraphs 3.01 (“Tenant agrees to comply with all health, safety, and sanitary laws

and regulations pertaining to the demised premises.”); 6.13 (Tenant “... shall comply with

any and all applicable ... federal, state and local laws, ordinances, as exist now or hereinafter

come into force, including but not limited to, those governing dispensing equipment,

pollution, the use, maintenance and labeling of product storage tanks, the prevention of

spills, leaks, venting or other improper escape from product containers or storage tanks, and

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the method of cleanup or disposal or product which has leaked, spilled, vented or otherwise

improperly escaped from containers or storage tanks.”).

7. TPI as successor-in-interest to Road Runner, at all times during the lease term, intended to

maintain ownership of, control over, and responsibility for the fuel dispensing system,

including the underground storage tanks, associated piping, pumps and other parts of the fuel

dispensing system. [The subjective intent of TPI is disputed and irrelevant. The Lease

language itself supplies the objective intent of the parties thereto, and TPI is bound by Road

Runner’s expression of intent in the Lease. This paragraph is really an argument about the

legal effect of TPI’s actions in controlling and maintaining the fuel system during the lease

term, as required by the Lease.]

8. TPI’s successor-in-interest purchased all of the machinery and equipment necessary for the

installation of the fuel dispensing system. [Powell assumes that this statement contains an

error because there are no issues or facts in the record about TPI’s successor-in-interest.

Powell admits that TPI’s predecessor-in-interest purchased all of the machinery and

equipment necessary for the installation fo the fuel dispensing system.]

9. Neither Road Runner nor TPI intended the fuel dispensing system to become permanently

affixed to the real estate as a real estate fixture.[Disputed. The Lease demonstrates that Road

Runner intended for the underground storage tanks to become real estate fixtures. Compare

Lease paragraphs 3.01 and 3.02. Furthermore, the fact that the tanks were buried under

several feet of soil, connected to underground piping, and covered with concrete paving

demonstrate intent that the tanks were to be permanently affixed to the real property.]

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10. TPI and its predecessors-in-interest registered the underground storage tanks at the leasehold

property with the Arkansas Department of Environmental Quality as the owner of the

underground storage tanks during the term of the lease agreement. [Powell admits that these

parties signed ADEQ forms as the “owner,” but denies that the regulatory term, in the

context of reporting a regulated activity, has any significance in interpreting whether the

tanks became real estate fixtures under the Lease. The Lease required the Tenant to perform

all reporting and regulatory obligations like tank registration. TPI did not create the ADEQ

form that includes the “owner” label.]

11. Plaintiff did not register, or at any time attempt to register, the underground storage tanks

at the leasehold property with the Arkansas Department of Environmental Quality, or any

other governmental agency, as an owner pursuant to A.C.C. §8-7-811. [Powell admits that

he did not register the underground storage tanks with ADEQ because the Lease required the

Tenant to do that.]

12. Plaintiff drafted the lease language in Section 3.02 and also beginning on page 6 of the lease

agreement. [Powell admits that he drafted most of the language beginning on page 6 of the

Lease. Powell testified that the language he supplied probably started with paragraph 6.08,

and he is sure he supplied everything from 6.11 to the end. Powell disputes the remainder

of Defendant’s statement no. 12 as a misleading summary of Powell’s testimony. Powell

testified that he was “90 percent positive” that he drafted some of the wording in Lease

paragraph 3.02. Upon questioning about whether he deleted specific words in that provision,

Powell said “I don’t remember.” Powell remembers making some changes, but doesn’t

remember the language of the provision before he made changes. In addition, George Lease,

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the lease agent for Road Runner, testified that Road Runner drafted the original lease form.

“Normally a sample lease would have been delivered or mailed to the lessor, Mr. Powell in

this case, and he would have been given the opportunity to review it with counsel or whoever

else he was considering getting some assistance in terms of any of the legal language in it

.... Those were items that were essentially the boiler plate, if you will, was used on this

particular case and just plugging in the dates of the terms and the financial conditions.” A

more true and accurate statement of the facts is as follows: Road Runner drafted the lease

and Powell modified the language before the parties agreed on and executed the final Lease.]

The Arkansas Court of Appeals dealt with the issue of fuel storage tanks and a canopy in the

case of Dobbins v. Lacefield, 35 Ark.App. 24, 25-29, 811 S.W.2d 334, 334-336 (1991) as illustrated

in the following excerpts:

The lease further provided that "Any improvements placed on the premises by Lessee shall

become the property of Lessor upon termination of this lease."

Pittman constructed a building on the property and appellees, as petroleum distributors,

supplied him with certain equipment to be used in connection with his business, including

three 6,000-gallon underground gasoline storage tanks and a 24-foot by 32-foot canopy,

which are in issue here. The gasoline tanks were installed by digging a 20-foot by 30-foot

hole, 10 feet deep, with a backhoe. The tanks were placed in the hole by use of heavy

equipment, packed with washed sand, and attached to underground electrical cables and

pipes that connected the tanks to the above-ground dispensers. In order to remove the tanks,

a backhoe and other heavy equipment would be required. The canopy was erected on two

poles set in concrete with underground cables running to the canopy from the gasoline

dispensers. In order to remove the canopy, a cutting torch must be used to cut the two steel

poles, leaving the concrete island. It would take three people two days to disassemble the

top portion of the canopy.

****

The test for determining whether items are fixtures is: (1) whether the items are annexed to

the realty; (2) whether the items are appropriate and adapted to the use or purpose of that

part of the realty to which the items are connected; and (3) whether the party making the

annexation intended to make it permanent. McIlroy Bank and Trust v. Federal Land Bank,

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266 Ark. 481, 585 S.W.2d 947 (1979). The issue of whether chattels that have been firmly

affixed to the real estate have retained their character as movables is ordinarily one for the

jury to resolve. Thomas Cox & Sons Machinery Co. v. Blue Trap Rock Co., 159 Ark. 209,

251 S.W. 699 (1923).

 

Appellee further offered testimony of custom and usage among petroleum products

distributors for the limited purpose of proving his intention and understanding with Pittman.

** **

The written lease agreement between appellant and Pittman provided that any improvements

placed on the premises by Pittman shall become the property of appellant upon termination

of the lease. There is no evidence to the contrary that appellees' equipment had been

attached to appellant's real estate in such a manner that it could not be removed without

serious injury to the realty and was appropriate and adapted to the use or purpose of that part

of the realty. There is no evidence that appellant had any knowledge of, or that he acquiesced

in, any agreement between appellee and Pittman. Therefore, on the facts of this case, we

conclude that the finding that this property so firmly affixed to the land had retained its

character as chattels is not supported by substantial evidence.

See also, Brown v. Blake, 86 Ark.App. 107, 116, 161 S.W.3d 298, 304 (2004):

Although it is true that there are cases, cited by appellee, in which similar installations were

found to have been fixtures, rather than personalty, see e.g., Corning Bank v. Bank of

Rector, 265 Ark. 68, 576 S.W.2d 949 (1979); Dobbins v. Lacefield, 35 Ark.App. 24, 811

S.W.2d 334 (1991); Barron v. Barron, 1 Ark.App. 323, 615 S.W.2d 394 (1981), it does not

follow that the building is a fixture as a matter of law. The question of whether particular

property constitutes a fixture is usually a mixed question of law and fact. Corning Bank,

supra.

Appellee's argument focuses on the permanent nature of the building and not on appellants'

intent, as evidenced by the lease, when erecting the building. The supreme court has

indicated that the intentions of the party making the annexation is the most important test.

Pledger v. Halvorson, 324 Ark. 302, 921 S.W.2d 576 (1996); Kearbey v. Douglas, 215 Ark.

523, 221 S.W.2d 426 (1949). 

The Arkansas appellate court again addressed the issue of fixtures in Adamson v. Sims, 85

Ark.App. 278, 284-285, 151 S.W.3d 23, 26-28 (2004) as reflected in the following summary:

We turn now to appellant's argument that the trial judge erred in characterizing the hangar

as a fixture. The question of whether particular property constitutes a fixture is sometimes

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one of fact only but usually is a mixed question of law and fact. CorningBank v. Bank of

Rector, supra. A fixture has been defined by our supreme court as property, originally a

personal chattel, that has been affixed to the soil or to a structure legally a part of the soil

and, being affixed or attached to the realty, has become a part of the realty. See Continental

Gin Co. v. Clement, 176 Ark. 864, 4 S.W.2d 901 (1928). It is annexed to the freehold for

use in connection therewith and so arranged that it cannot be removed without injury to the

freehold. See id. The courts have devised a three-part test to determine whether an article

is a fixture: (1) whether it is annexed to the realty; (2) whether it is appropriate and adapted

to the use or purpose of that part of the realty to which it is connected; (3) whether the party

making the annexation intended to make it permanent. See Pledger v. Halvorson, 324 Ark.

302, 921 S.W.2d 576 (1996). The third factor – the intention of the party who made the

annexation – is considered of primary importance. Id.; Kearbey v. Douglas, 215 Ark. 523,

221 S.W.2d 426 (1949). The courts use an objective test to arrive at the annexer's intention.

See Pledger v. Halvorson, supra.

****

Our courts have decided several cases on the issue of whether large structures are fixtures

or personalty, and the outcome of those cases has depended upon their particular facts. A

structure was held to be a fixture in Corning Bank v. Bank of Rector, supra, where an expert

opined that it would be impractical to remove 22-foot-by-21-foot grain bins with

7,000-bushel capacities attached to the ground by 12-foot deep footings. A structure was

also ruled a fixture in Dobbins v. Lacefield, 35 Ark.App. 24, 811 S.W.2d 334 (1991), where

a canopy was set in concrete with underground cables and gasoline tanks were placed in

20-foot-by-30-foot holes that were 10 feet deep and could be removed only by a backhoe,

and in Barron v. Barron, 1 Ark.App. 323, 615 S.W.2d 394 (1981), where grain-storage bins

and a shop building were set in deep concrete and the cost of moving and reassembling a

new bin would cost as much as buying a new one. In contrast, mobile homes were held not

to be fixtures in Pledger v. Halvorson, supra, even though they had been placed on concrete

foundations with extensive modifications and had no tongues, axles, or wheels. In addition,

see Garmon v. Mitchell, 53 Ark.App. 10, 918 S.W.2d 201 (1996), holding that grain bins

were not fixtures, and Farmers Mutual Insurance Co. v. Denniston, 237 Ark. 768, 376

S.W.2d 252 (1964), holding that a house trailer was not a fixture. See also In re Hot Shots

Burgers & Fries, Inc., 147 B.R. 484 (E.D. Ark. 1992), ruling that a fast-food building

constructed from prefabricated modules was not a fixture.

We distinguish this case from those cited above in which large structures were held to be

fixtures. In each of those cases, strong evidence of the annexing party's intention to treat the

structure as chattel was lacking. In the case at bar, there was considerable evidence, as set

out earlier in this opinion, that McRae, the annexing party, intended to treat the structure as

personalty. Further, there was equally strong evidence that the owner of the realty, the

Pemberton Trust, shared that intention. Thus, the third factor in the test, which is the factor

of primary importance, operates in favor of appellant. As in Pledger v. Halvorson, supra,

the intention of the parties, being the crucial consideration, should govern.

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Based on the above analyses, the Court now applies the three-part test to the facts presented

here. First, it is undisputed that the fuel tanks were annexed to the property; indeed, they were

buried several feet deep. The second factor is also present for the tanks being appropriate for use

at the convenience store. However, the Court cannot say as a matter of law that the third factor of

intent has been met. The Arkansas courts have stressed the importance of the objective intent of the

parties and while they have focused on that intent from the terms of the lease, the above excerpts

also demonstrate that the courts have looked to the particular facts of each case including evidence

outside the lease itself. Here, the Court believes that an ambiguity is created by the phrase “other

[sic] any part of same” and that, as reiterated by the Arkansas courts, the issue of whether the tanks

are a fixture is a mixed question of fact and law and is ordinarily resolved by a jury.

Accordingly, defendant’s March 25th motion (#12) for summary judgment and plaintiff’s

March 25th motion (#14) for partial summary judgment are hereby denied.

IT IS SO ORDERED this 13th day of October, 2005.

________________________________

UNITED STATES DISTRICT JUDGE 

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