Court Opinion

ID: 8454883
Source: CourtListenerOpinion
Date Created: 2022-11-05 03:15:35.150818+00
Date Added: 2024-06-11T16:49:02.963785
License: Public Domain

OWEN, Circuit Judge,
dissenting.
Because I would affirm the district court’s judgment, I respectfully dissent. I agree with the district court that there is no material fact issue and that when RARE and HDRE entered into the Assignment of HDRE’s right to purchase the property at issue from Stirling, both RARE and HDRE clearly expressed the intent to novate the prior Ground Lease agreement under which RARE and HDRE had agreed that, subject to certain contingencies, HDRE would purchase the property from Stirling and lease it to RARE. When HDRE and RARE entered into the Assignment agreement, HDRE no longer had the means of performing the prior Ground Lease agreement. It is clear that the new agreement, the Assignment agreement, was to supersede entirely the earlier Ground Lease agreement.
The panel majority’s reasoning cannot withstand analysis. After RARE decided not to purchase the Stirling property and therefore was not obligated to pay HDRE under the Assignment agreement, it is at least conceivable that HDRE might have been able to negotiate a new purchase agreement with Stirling. How*880ever, that would not have been done within the contemplation of the Ground Lease agreement. Even if HDRE were able to purchase the Stirling property and to purchase it on terms similar to those under the original purchase option it had with Stirling that it later assigned to RARE, it is clear that RARE would not have been entitled to sue HDRE if HDRE was unsuccessful in acquiring the Stirling property. RARE’s rights to enforce the Ground Lease agreement were extinguished once HDRE and RARE agreed to restructure their transaction and HDRE assigned its option to purchase the Stirling property to RARE. RARE could not thereafter claim that HDRE remained obligated to purchase the Stirling property and that HDRE would have to pay damages if it could not perform under the Ground Lease agreement. For the same reasons, after the parties entered into the Assignment agreement, HDRE could not thereafter claim that RARE remained obligated to lease the property from HDRE. There was a novation of the Ground Lease agreement. If no novation was intended, then there was no novation of either party’s rights under the Ground Lease agreement. But that is certainly not a viable proposition in light of the facts of this case. The panel majority strains to find a possible agreement between HDRE and RARE that neither the facts nor the law can support.
I
RARE desired to build a steakhouse on a parcel of land owned by Stirling that was part of a shopping center. RARE approached HDRE to arrange for HDRE to purchase the property from Stirling, and RARE would then lease the property from HDRE. HDRE subsequently entered into a Purchase Agreement with Stirling under which HDRE had the exclusive option to purchase the property at issue. During the negotiations between HDRE and RARE of the specific terms of their agreement, RARE was acquired by a larger restaurant chain. Eventually, the Ground Lease was signed between RARE and HDRE under which RARE could opt out with no penalty during a feasibility period. HDRE made several non-refundable payments to Stirling to secure and later extend the exclusive option to purchase the property while RARE continued to study the feasibility of the project.
Before the Ground Lease agreement was fully effectuated, RARE informed HDRE that it would rather buy the Stirling property outright instead of leasing it from HDRE. RARE asked HDRE to assign its exclusive purchase option to RARE, which HDRE agreed to do. Under that Assignment agreement, RARE agreed to pay HDRE $210,000 if it purchased the property from Stirling, but HDRE would receive nothing if RARE decided against purchasing. Consistent with the change in the nature and structure of the deal between HDRE and RARE, HDRE and Stirling executed a third and final extension agreement of the purchase option that also required HDRE to assign its exclusive purchase option to RARE. The Assignment agreement between RARE and HDRE was subsequently executed. RARE ultimately chose not to purchase the Stirling property, as it had the right to do. HDRE recognized that it had no recourse against RARE under the Assignment agreement, and HDRE instituted this suit seeking damages for breach of the Ground Lease agreement, even though HDRE never acquired the property from Stirling and therefore never had the ability to lease the property to RARE.
II
RARE contends, and the district court held, that when HDRE and RARE entered into the Assignment agreement, and HDRE assigned its right to purchase the *881Stirling property to RARE, HDRE and RARE intended for there to be a novation of the original Ground Lease agreement. Under Louisiana law, which governs this dispute, a court may consider “the character of the transaction, the facts and circumstances surrounding the transaction and the terms of the agreement” in deciding whether the parties intended to effect a novation by substituting a new obligation for a former one.1 Novation may not be presumed, but it also need not be expressly declared in the written agreement.2 In this case, the terms of the Assignment agreement are silent on its effect on the Ground Lease agreement, but the character of the transaction as a whole and the facts and circumstances surrounding it leave no doubt that the parties intended to replace the Ground Lease when they executed the Assignment agreement.
The decision in Placid Oil Company v. Taylor is instructive.3 In that case, Taylor owned a portion of the mineral interests in two tracts of land and leased his interest to an oil company in 1964 in exchange for a one-eighth royalty.4 Those mineral interests were later sold through mesne conveyances to Johnson. Johnson also acquired other mineral interests in the two tracts of land in addition to the mineral interests that Taylor had owned. Johnson entered into a lease with the oil company in 1965 purporting to cover all of his mineral interests in the two tracts of land.5 The latter lease provided for a one-fourth royalty, and made no reference to the previous lease.6 The court of appeals noted that there were three conceivable arguments regarding the intent of Johnson and the oil company in entering into the 1965 lease, which were (1) the 1964 lease was extinguished and the 1965 lease substituted; (2) the 1964 lease continued in effect as to the Taylor interests and the 1965 lease covered only those interests that Johnson acquired in addition to the Taylor interests; and (3) the 1964 leases were to co-exist, with the result that the oil company owed a three-eights royalty as to the Taylor interests.7 None of the parties advocated for the third possibility.8 The oil company urged the court to embrace the second possibility and argued that it owed only a one-eighth royalty on the Taylor mineral interests. The Louisiana court rejected that argument and held that as a matter of law, “a novation clearly was effected by the execution of the 1965 lease.”9 The Louisiana Court of Appeal concluded that it was “inconceivable” that the parties would fail to mention the prior lease if they had intended to continue to enforce its terms in spite of the new lease.10
The same logic applies here. There are three possible scenarios. One is that the Ground Lease agreement and subsequent Assignment agreement coexist, with no no-vation at all. Neither party argues that this was its intent. HDRE candidly acknowledged at oral argument that if RARE had purchased the Stirling property and paid HDRE $210,000, the Ground Lease agreement would have been extinguished. The second possibility, according to HDRE, is that the parties intended a *882novation only if RARE decided to purchase the property from Stirling. HDRE contends that RARE was obligated to either lease the property or purchase it, but not to walk away from the proposed restaurant project. This is entirely at odds with every written document executed by the parties and by Stirling. The original Ground Lease agreement allowed RARE to terminate within the feasibility period. RARE had the option of choosing not to proceed with leasing the property. The Assignment agreement was already under negotiation by the time the feasibility period under the Ground Lease agreement expired, and HDRE had failed to meet certain obligations it had under the Ground Lease agreement at that time.
On the date that the feasibility period in the Ground Lease agreement expired, HDRE executed a third extension agreement with Stirling which required HDRE to assign its exclusive option to purchase the Stirling property to RARE. When HDRE then assigned the option to purchase to RARE, the Assignment agreement did nothing to obligate RARE unconditionally to purchase, much less lease, the Stirling property. Nothing in the Assignment agreement indicates that the parties intended a novation of the Ground Lease agreement only if RARE actually consummated the purchase of the Stirling property. Instead, the record shows that HDRE originally asked RARE to pay $210,000 at the time the Assignment agreement was executed, regardless of whether RARE completed the purchase from Stirling. RARE rebuffed that request, and the parties expressly agreed in writing as part of the Assignment agreement that HDRE would be paid by RARE if and only if RARE purchased the property from Stirling.
The third possible scenario regarding novation is that RARE and HDRE intended for the Assignment agreement to replace the Ground Lease agreement entirely. This is the only possibility that is supported by competent evidence. Testimony from HDRE’s principal and its attorney regarding subjective intent or an oral agreement is insufficient to raise a fact issue regarding intent when that testimony contradicts the written Assignment agreement and all contemporaneous written documentation and agreements.
When HDRE assigned its exclusive right to purchase Stirling’s property to RARE, HDRE no longer had the ability to lease to RARE. The Ground Lease agreement between HDRE and RARE was subject to contingencies that never occurred, one of which was that HDRE would exercise its option with Stirling and purchase Stirling’s property. Once HDRE assigned its right to purchase to RARE, the sequence of events contemplated by the Ground Lease agreement, including HDRE’s exercise of its option to purchase the Stirling property, could not occur. After the Assignment, HDRE no longer had the right to purchase the Stirling property.
Instead, HDRE and RARE both agreed, in writing, that the right to purchase the Stirling property would be conveyed by HDRE to RARE. HDRE and RARE further expressly agreed in writing that although RARE had the right to purchase the Stirling property, it did not have the obligation to do so. Both HDRE and RARE agreed in writing that HDRE would be compensated if and only if RARE actually exercised the right to purchase the Stirling property. No vestige of the Ground Lease agreement remained.
* * ❖ * * *
I would affirm the district court’s grant of summary judgment and therefore dissent.

. Scott v. Bank of Coushatta, 512 So.2d 356, 360 (La.1987).

. Placid Oil Co. v. Taylor, 325 So.2d 313, 316 (La.App. 3d Cir.1976), writ denied, 329 So.2d 455 (La.1976).

. Id.

. Id. at 314.

. Id. at 315.

. Id.

. Id. at 316-17.

. Id. at 317.

. Id.

. Id.