* Judge of the U.S. Court of International Trade, sitting

by designation. UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 99-11375

PETULA ASSOCIATES, LTD.,

Plaintiff-Counter Defendant-Appellant-Cross Appellee,

VERSUS

DOLCO PACKAGING CORPORATION,

Defendant-Counter Claimant-Appellee-Cross Appellant.

Appeals from the United States District Court

for the Northern District of Texas, Dallas Division

February 12, 2001

Before DAVIS and EMILIO M. GARZA, C ircuit 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 pursuantto 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 t o Dolco of an equitable accounting and attorneys’

fees, WITHOUT PREJUDICE as to the attorneys’ fees. Dolco’s crossappeal is DISMISSED AS MOOT. This case is REMANDED for judgment

consistent with this opinion.

Factual Background

This suit arose from a dispute regarding a purc hase option

contained in a lease agreement (“the lease”) on a property located

in Dallas, Texas (“the proper ty”). 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’sreorganization. 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 appraiser s’ 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 acco rdance with the lease purchase provision, Dolco

informe d Petula on August 1, 1996, of its intent to exercise its

option to purchase the property for “fair market value.” The

parties were, however, unsu ccessful 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.1 Neither party appeals this aspect of the district court’s

decision. Dolco’s a ppraiser 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 th ird 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

feder al 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

D olco was entitled to specific performance of the lease. 1 In

addit ion, 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 appraiser2 Although Petula co m plied with the court’s orders to

proceed with appraisal of the property, it reserved the right to

appeal the lower court’s determinations. 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

p ositive 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, forw ard. Although Dolco had requested an accounting fromDecember 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 Texa s 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 lega l 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

agr ee 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 consideratio n (as to fair market rate), and the

quality, utility and location of the space involved.

T exas 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 an d buyer were not compelled to enter

into the transaction. See State v. Windham

, 837 S .W.2d 73, 77

(Tex. 1992)(quoting S tate v. Carpenter

, 126 Tex. 604, 89 S.W .2d

194, 202 (Tex. 1936))(fair market value is “‘the price which the

property would bring w hen 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 understood3 The lease in that case used the term “current market

value,” and the court refers to, simply, “market value.” S ee TCC

, 149 Ariz. at 258, 717 P.2d at 937 (“Market value is determined by

hypothesizing a sale; it is that price a desirous but unobligated

purchaser would pay a desir ous but unobligated seller after

consideration of all uses to which the property is adapted and for

which it is capable of being used.”).

4 Because Texas law defines “fair market value” with

reference to an unobligated se ller and an unobligated buyer, we

must disregard the obligations placed on Petula and Dolco by the

purchase option contained in the lease. according to this meaning, absent a clear indication to the

contrary. See R ESTATEMENT (S ECOND ) OF C ONTRACTS § 202 (3)(a) (1981). As

such, we agree with the district court that the term “fair market

value” is not ambiguous.

If Texas’s definition of “fair market value” is applied, the

value of the lease should be considered. For example, in T CC

Enters. v. Estate of Erny , 149 Ariz. 257, 717 P.2d 936 (Ariz. Ct.

App. 1986), the Arizona Court of Appeals applied an ident ical

definition of “fair market value” 3 in valuing a leased property

sold by the lessor to the lessee pur suant to a purchase option.

The court concluded that, because a buyer on the open market would

purchase the property as a leased-fee estate, the leas e would

affect the value of the property, and therefore must be considered

in the property’s valuation. See TCC , 149 Ariz. at 258, 717 P.2d

at 937. Here, on August 1, 1996, what Petula had to sell was an

estate subject t o a lease. 4 In T CC

, the effect of including the

value of the lease was to decrease the fair market value of the

property; in this instance, because of the graduated rent schedule,5 In TCC , the lessor pointed to similar language in the

lease that excluded the value of remodeling and improvements from

the fair market value of the property. The lessor argued there

that, because the lease allowed only these deductions, a deduction

for the lease could not be made in calculating the fair market

value. The court disagreed, explaining that the language

“indicates an intent of the parties that the lessee not pay for

something already paid for. If TCC is required to pay Erny [for the effect of including the lease is to increase the fair market

value of the property. Nonetheless, fair market value must reflect

the value of that which can be sold.

The district court decided, however, that, because Paragraph

28 “requires the parties and/or appraisers to specifically consider

the

. . . enumerated factors when determining the fair market value

for the property

. . . the phrase ‘fair market value’ has a unique

meaning with respect to the [l]ease.” Mem. Opinion and Order (Feb.

23, 1998), at 15. We disagree. Paragraph 28 does not contain

specific language indicating that it is an exclusive list of the

factors to be relied upon in determining fair market value; rather,

the parties are to “consider” the factors listed. The language of

Paragraph 28 does not compel the parties to refrain from

considering other factors. Moreover, Paragraph 28 states that

parties should consider the value of “like premises” in determining

fair market value. Under the analysis above, “like premises” means

a property subject to a lease; thus, the lease should be included.

Finally, the parties failed to include the leas e in the list of

items that are explicitly excluded from the fa ir market value

calculation, given that the i tems “have been or will be paid” by

Dolco. 5 Absent explicit language indicating that the lease shouldthe fee not subject to the lease], it w ould pay [extra] for

something it already owned, the lease to the year 2002.” See TCC

at 149 Ariz. 258, 717 P.2d at 937. Here, application of the same

principle has a different result because of the facts of the case.

If the value of the lease is not included, Dolco would pay less for

what it owns than what it agreed to pay in the form of increased

rents during the later years of the lease.

6 Indeed, appraisal industry standards indicate that the

effect of a lease must be considered. S ee A PPRAISAL STANDA RDS BOARD

,

UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE

, S.R. 1-2(c) (1996). or should not be included in determining fair market value, the

district cour t erred in deviating from the definite and fixed

meaning given to the term “fair market value” in Texas contract

law, which would include the value of the lease. 6

II. Transfer Subject to the First Lien Mortgage

Paragraph 43(D) of the lease provides in relevant part:

At [Petula’s] option, the purchase price shall be payable

either all in cash at closing or by [Dolco] accepting

title to the premises subject to any then existing first

lien mortgage indebtedness and paying the balance of the

purchase price to [Petula] in cash.

The issue is whether Paragraph 43(D) allows Petula to require Dolco

to accept Petula’s first lien mortgage debt of $3.8 million, even

if the debt amount exceeds fair market value ( i .e.

, purchase

price). Given our decision that the value of the lease should be

included in the determination of fair market value, and that the

appraiser who included the value of the lease appraised the

property at $5.15 million, it appears unlikely that the fair market

value of the property will be less than the $3.8 million first lien

mortgage debt. Nonetheless, we address the question in the eventthat the fair market value is in fact determined to be less than

$3.8 million.

The district court held that, “the language contained in

Paragraph 43(D) . . . is only available to [Petula] if there is a

[sic] positive equity in the building.” Mem. Opinion and Order

(Mar. 31, 1999), at 8. The court noted that it was required to

enforce the contract as written, and therefore it could not enlarge

t he payment provision to afford Petula an unlimited right to

transfer its mortgage debt. S ee Hubler v. Oshman

, 700 S.W.2d 694,

699 (Tex. App. Corpus Christi 1985)(stating that a “court has no

power to decree specific performance in any manner except in

keeping with the terms of the agreement made by the parties”).

We agree with the district court. Courts “must enforce the

unambiguous language in a contract as written, and the applicable

standard is ‘the objective intent’ evidenced by the language used,

rather than the subjective intent of the parties.” C lardy Mfg. Co.

v. Marine Midland Bus. Loans

, 88 F.3d 347, 352 (5th Cir.

1996)(quoting Sun Oil Co. (Del aware) v. Madeley , 626 S.W.2d 726,

731 (Tex. 1981)). The language in Paragraph 43(D) is not

ambiguous; it allows D olco to pay all in cash, or to accept

transfer of mortgage debt and pay the remainder of the purchase

price in cash. The language chosen by the parties indicates that

they intended to allow Petula to transfer mortgage debt only if the

debt does not exceed the purchase price. Petula would interpret

Paragraph 34(D) to allow it an unfe ttered ability to transfermortgage debt; the language of the provision does not, however,

support such a broad reading.

III. Equitable Accounting and Attorneys’ Fees

The district court awarded Dolco an equitable accounting and

attorneys’ fees because of Petula’s failure to close at the

purchase price of $3 million established by the June 18, 1998,

appraisal. As a consequence of our decision above that the fair

market valu e must include the value of the lease, the June 18,

1998, appraisal of the “then fair market value” for purposes of

Dolco’s exercise of its purchase option pursuant to Paragraph

43(A)(ii) was incorrect a s a matter of law. Therefore, the July

18, 1998, “latest closing date” r equired by Paragraph 43(D), on

which the district court based its award of an equitable

accounting, was ineffective as a means of placing Petula in

default. Because Paragraph 18(K) of the lease gives Dolco an

“exclusive remedy

. . . for damages” “[i]n the event of any default

by [Petula],” lacking any default on the part of Petula, Dolco has

no right to damages. Further, Paragraph 38 of the lease allows

Dolco to recover attorneys’ fees only if it is “the prevailing

party.” Dolco has failed to prevail on its claim that fair market

value was correctly determined by not considering the value of the

lease. Dolco has, however, prevailed on its claim that Petula was

not allowed under the lease to attempt to transfer the property

subject to the first mortgage lien, where the value of the mortgage7 Although the fair market value including the lease will

likely exceed the $3.8 million mortgage, we note that we disagree

with the district court that attorneys’ fee s may exceed Petula’s

equity in the property. Paragraph 38 provides Dolco with a right

to seek attorneys’ fees; Paragraph 18(K) governs how such judgments

against Petula may be satisfied, and states explicitly that,

“ Notwithstanding any other provision hereof

, [Petu la] shall not

have any personal liability hereunder.” (Emphasis added.) Thus, to

the extent that an award of attorneys’ fees exceeds Petula’s equity

in the property, such amount is disallowed by the plain language of

Paragraph 18(K). exceeded the equity in the property. Accordingly, we vacate the

district court’s award to Dolco of an equitable accounting and

attorneys’ fees, without prejudice to the district court’s ability

on remand to reinstate a portion of the award for attorneys’ fees

related solely to the cost of litigating the first lien mortgage

issue. 7

Conclusion

The district court ’s ruling that fair market value need not

include the value of the lease is REVERSED. The district court’s

ruli n g that Petula may not transfer the property subject to the

first lien mortgage unless the equity in the property exceeds the

value of the mortgage is AFFIRMED. The district court’s award to

Dolco of an equitable accounting and at torney’s fees is VACATED,

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.