Opinion ID: 3015576
Heading Depth: 1
Heading Rank: 2

Heading: breach of the lease agreement

Text: We must first address the difficult question whether defendants breached the lease agreement. While the District Court relied essentially on the damages issue in granting judgment as a matter of law, the Court also suggested that defendants may not have breached their obligations under the lease.5 We conclude, 5 A district court exercising diversity jurisdiction must apply the substantive law of the state whose law governs the action. Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n. 15 (3d Cir. 1996) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 9 however, that a jury could reasonably find that defendants violated the lease. Under New Jersey law, a commercial lease is governed by traditional contract principles, see Ringwood Assocs. v. Jack’s of Rte. 23, Inc., 398 A.2d 1315, 1320 (N.J. Super. Ct. App. Div. 1979); Matter of Barclay Indus., Inc., 736 F.2d 75, 78 (3d Cir. 1984), under which “[d]iscerning contractual intent is a question of fact unless the provisions of a contract are ‘wholly unambiguous.’” Id. at 78 n.3 (citations omitted). Thus, only where the terms are unambiguous is judgment as a matter of law appropriate. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 (3d Cir. 1991). To interpret a contract, courts will consider the “actual words of the agreement themselves, as well as any alternative meanings offered by counsel, and extrinsic evidence offered in support of those alternative meanings,” id., reading contract terms in context. See Barco Urban Renewal Corp. v. Housing Auth. of Atlantic City, 674 F.2d 1001, 1009 (3d Cir. 1982); Restatement (Second) of Contracts § 202(2) (1981). Additionally, where the contractual language is ambiguous, we may look to the conduct of the parties following the execution of the lease to interpret the ambiguous lease provisions. See Michaels v. Brookchester, Inc., 140 A.2d 199, 204 (N.J. 1958) (“Where ambiguity exists, the subsequent conduct of the parties in the performance of the agreement may serve to reveal their original understanding.”). There are two phrases in Paragraph 20A of the Addendum to the Lease Agreement that could support Jaasma’s claim that Defendants breached their obligations under the lease: first, the lease states that Shell “shall comply with all applicable environmental laws”; and second, the agreement states that the (1938)). “When the state’s highest court has not addressed the precise question presented, a federal court must predict how the state’s highest court would resolve the issue.” Id. But “[a]bsent a definitive statement of the applicable law by the state’s highest court, a district court may also consider the decisions of state intermediate appellate courts in order to facilitate its prediction.” Paolella v. Browning-Ferris, Inc., 158 F.3d 183, 189 (3d Cir. 1998). 10 property shall be returned “to its original state.” Under the lease agreement, it was Shell’s responsibility to comply with all applicable environmental laws. The pertinent environmental regulations include both substantive and reporting requirements. Thus, the regulations governing underground storage tanks not only require physical remediation, but also contain a series of sampling and reporting requirements in the wake of a reported discharge of petroleum contaminants. See N.J.A.C. 7:26E-1.1 et seq. Although there is no explicit obligation for Shell to obtain an NFA or to provide information to Jaasma about the environmental condition of the property after the termination of the lease, we believe that a reasonable factfinder might determine that compliance with “all applicable environmental laws” includes the obligation to produce the evidence and reports necessary for NJDEP to issue an NFA. Evidence of custom and practice in the trade might also support such a finding. See VRG Corp. v. GKN Realty Corp., 641 A.2d 519, 523 (N.J. 1994) (looking to, inter alia, custom and usage as evidence of the parties’ intention). Second, Defendants had a contractual duty to return the property to its “original state.” Jaasma argues that this obligation encompasses not only a duty to leave the property free from physical contamination, but also a duty to leave the property in marketable condition. Under this view, even if defendants had successfully remediated the soil and groundwater prior to the termination of the lease agreement, after the contamination was discovered, an NFA was a crucial aspect of returning the property to the “original state” so that the property could be freely marketed for sale or lease. We need not decide, as an abstract proposition, whether an NFA per se is required; we do however believe that a reasonable fact finder could determine that the duty to return the property to its “original state” encompasses the duty to leave the property free from the kind of impediments that would render it unmarketable.6 Based on the deposition testimony of Charles Lanyard (who served 6 Obviously, the legal conclusions reached in this part of the opinion are our prediction of what the New Jersey Supreme Court would likely hold. Orson, Inc., 79 F.3d at 1373 n. 15. 11 as both a fact and expert witness for Jaasma), on Jaasma’s proffer that three realtors told her that she could not sell the property at market price without an imminent NFA, and on the evidence that prospective buyers made an NFA a precondition for sale, we believe that a factfinder could reasonably find that the property was not fully marketable prior to the issuance of the NFA.7 Finally, New Jersey courts have given “great weight” to the parties’ course of conduct in discerning the intent of the parties. See Joseph Hilton & Assoc., Inc. v. Evans, 492 A.2d 1062, 1070 (N.J. Super. Ct. App. Div. 1985); Savarese v. Corcoran, 709 A.2d 829, 832-33 (N.J. Super. Ct. 1997). Where the contract terms are ambiguous, New Jersey courts have been willing to infer contractual duties based on the conduct of the parties. For example, in Michaels, 140 A.2d at 200, tenants sued their landlord for failure to repair a cabinet door’s hinge, which gave way, injuring one of the tenants. The New Jersey Supreme Court found that the lease “contain[ed] no clearcut promise by the tenant or landlord with respect to repair of the defect[ive cabinet door] . . . .” Id. at 204. Nevertheless, the court found that “[w]hen we look to the actual performance of the parties, we find conduct which persuasively justifies the conclusion that the parties did intend by the writing that the landlord make repairs” because the landlord generally furnished a maintenance crew, had made repairs on prior occasions in response to tenants’ calls, and “readily agreed to repair the cabinet door” when asked. Id. at 205-06. The parties’ course of conduct in this case supports the view 7 At his deposition, Lanyard was asked whether the property would be unmarketable if the contamination was removed before the tenant left the site and all that remained was ongoing testing. Lanyard testified, “Once there is a no further action [letter], [potential buyers] know—they feel they can proceed without a problem. But if there is [sic] some other concerns or some monitoring problems that might occur or future question as to . . . whether or not they can build on the property, it’s going to come up; the issue will, in fact, be raised.” Even if the property could be built upon immediately, Lanyard stated, “somebody would have a higher comfort level. But I’m sure that . . . they would still look for the final cleanup, especially on buy situation . . . .” 12 that it was defendants’ obligation under the lease not only to clean up the property, but also to engage in the sampling and reporting necessary to obtain an NFA and to restore the property to fully marketable status. Jaasma has adduced evidence which shows that, following the first spill in 1989, defendants took full responsibility for dealing with NJDEP regulatory procedures by conducting all of the physical remediation, and by taking the necessary samples, submitting the data, and handling the regulatory processes in order to obtain a conditional NFA. Moreover, as in Michaels, during the events which gave rise to this litigation, defendants have apparently never disputed that they were responsible for obtaining an NFA and they have in fact done so. The parties’ course of dealing thus further justifies submitting the breach element to the jury. In sum, given the varying interpretations offered by Jaasma and defendants of the contractual language, see St. Paul Fire & Marine Ins., 935 F.2d at 1431 (looking to “alternative meanings offered by counsel” to discern contractual intent), we cannot say that the lease is “wholly unambiguous” as to defendants’ contractual duties. And we conclude that the language of the lease and the parties’ course of dealing present a jury question whether defendants had a duty under the lease to obtain an NFA following the discharge of contaminants from defendants’ underground storage tanks and to render the property fully marketable by the conclusion of the lease term.