Court Opinion

ID: 33602
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:06:51+00
Date Added: 2024-06-11T16:50:06.104516
License: Public Domain

United States Court of Appeals
                                                                  Fifth Circuit
                                                               F I L E D
                 IN THE UNITED STATES COURT OF APPEALS        December 3, 2003
                         FOR THE FIFTH CIRCUIT
                                                           Charles R. Fulbruge III
                                                                   Clerk

                             No. 03-40307

     DANIEL G KAMIN KILGORE ENTERPRISES

                            Plaintiff - Counter Defendant - Appellee

     v.

     BROOKSHIRE GROCERY COMPANY

                            Defendant - Counter Claimant - Appellant

          Appeal from the United States District Court
            for the Eastern District of Texas, Tyler
                         No. 6:01-CV-611

Before KING, Chief Judge, and DAVIS and EMILIO M. GARZA, Circuit

Judges.

PER CURIAM:*

     Defendant-Appellant Brookshire Grocery Company

(“Brookshire”) appeals the district court’s denial of summary

judgment in its favor and the district court’s grant of summary

judgment in favor of Plaintiff-Appellee Daniel G. Kamin Kilgore

Enterprises (“Kilgore”).    We reverse and render judgment in favor

of Brookshire.

     *
          Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.

                                   1
             I.    Factual and Procedural Background

A.   Facts

     In 1981, Brookshire leased retail space in a strip mall in

Kilgore, Texas for the purpose of operating a grocery store.

Brookshire was to be the anchor tenant for the shopping center.

In return for the retail space, Brookshire agreed to pay to the

lessor the greater of either $4,707.69 per month or 1% of

Brookshire’s net annual sales exceeding $5 million.1   Kilgore

purchased the leased premises in 1994 and is the current lessor

of the property.

     In 2001, Brookshire completed construction of a new, larger

store on land adjacent to the shopping center.   Just before

Brookshire’s lease with Kilgore was up for renewal, Brookshire

moved into the new building and vacated the leased property.

Nevertheless, Brookshire continued to pay rent under its lease

with Kilgore and, to Kilgore’s surprise, exercised its option to

renew the lease for an additional five years.

B.   Procedural History

     Kilgore filed suit against Brookshire, alleging that

Brookshire breached its obligations under the lease agreement by

failing to operate continuously in the shopping center during the

     1
          The lease agreement has been amended on three occasions
to adjust the rental amount required under this provision. The
latest revision requires Brookshire to pay $93,564 annually plus
1% of net sales in excess of $7.6 million.

                                2
term of the lease.   Both parties moved for summary judgment.      The

district court denied Brookshire’s motion and granted Kilgore’s,

finding that the lease agreement required continuous operation of

a grocery store in the leased property.      The parties then entered

into an agreement that stipulated the amount of damages but

preserved Brookshire’s right to appeal the district court’s

ruling on liability.   After reviewing the agreement, the district

court entered final judgment in favor of Kilgore.     In keeping

with the parties’ stipulation, Brookshire now appeals.

                          II.   Discussion

A.   Standard of Review

     We review de novo a district court’s decision to grant or to

deny summary judgment.    Patterson v. Mobile Oil Corp., 335 F.3d

476, 487 (5th Cir. 2003); see also Scot Props., Ltd. v. Wal-Mart

Stores, Inc., 138 F.3d 571, 573 (5th Cir. 1998).     “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 legal meaning or interpretation.’”      Petula Assocs., Ltd.

v. Dolco Packaging Corp., 240 F.3d 499, 502 (5th Cir. 2001)

(quoting Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).

B.   Analysis

     The parties agree that the outcome in this case depends on

our interpretation of the express provisions contained in their

lease agreement; this is not, the parties agree, an implied-

                                 3
covenant case.   The key language is found in Section 4.01 of the

contract,1 which states:

     Use of Leased Premises. The Leased Premises are leased
     to TENANT, and TENANT shall use and occupy the same
     during the term hereof solely for the purpose of
     conduction [sic] this business of a grocery, produce and
     meat marketing establishment and other goods, wares, and
     merchandise usually handled by supermarket [sic], with
     related items as are carried by supermarket operations
     generally during the term of this lease.

Both parties contend that this provision is unambiguous and can

be interpreted by the court as a matter of law, but each party

interprets the provision differently.   Kilgore argues that the

plain language of Section 4.01--read in conjunction with other

provisions in the lease agreement and the circumstances

surrounding the lease’s execution--requires Brookshire to operate

a grocery store continuously in the leased property during the

lease term.   Brookshire counters that Section 4.01 merely

restricts the purposes for which the leased premises may be used

and that other provisions of the lease and circumstances outside

the lease are irrelevant to the meaning of this unambiguous

provision.

     The district court agreed with Kilgore’s reasoning.

Although the court recognized that this case involves an express,

rather than implied, covenant, it found the circumstances

surrounding the execution of the lease agreement to be useful in

     1
          The lease agreement has been amended on three
occasions, but Section 4.01 has not been altered.

                                 4
discerning the original intent of the parties who signed the

lease agreement.   First, the court found the percentage-rent

provision to be relevant.   According to the court, such a

provision shows that the parties intended for Brookshire to

operate a grocery store; otherwise, there would be no profits

generated from which the additional rent would be paid.   Second,

the court thought it relevant that Brookshire was to be the

anchor tenant of the shopping center.   Third, the court found the

lease provision regarding subletting to be pertinent, since it

required Brookshire to operate at least 75% of the premises if

Brookshire subleased the premises in part.   Fourth, the court

found the phrases “during the term hereof” and “during the term

of this lease” helpful to discerning the intent of the parties to

the lease agreement.

     Because state law governs our interpretation of Section

4.01, we look to Texas state court decisions for guidance.2     In

Weil v. Ann Lewis Shops, 281 S.W.2d 651 (Tex. Civ. App.--San

Antonio 1955, writ ref’d), the plaintiff had leased certain

property to the defendant “‘for occupation and use as Ladies’,

Misses’ and Children’s ready-to-wear and accessories and not

otherwise.’”   Id. at 654 (quoting the parties’ lease agreement).

The contract also had a percentage-rent provision, which required

     2
          As we find the position of the Texas courts to be
clear, we do not rely on the authority from other jurisdictions
cited by the parties.

                                 5
the defendant to pay a certain minimum rent plus the difference

between the minimum rent and five percent of the gross receipts

of the business conducted on the leased premises.        The defendant,

however, never occupied the premises or conducted business there.

The plaintiff argued that the defendant had a duty to operate a

store in the leased premises and, since it had not done so, the

defendant owed to the plaintiff the additional rent it would have

paid under the percentage-rent provision, had it actually

operated the store.

      The Texas court disagreed.    According to the court, the

language of the contract was “plain and unambiguous”; nothing in

the contract explicitly required the defendant to operate the

store continuously.   Id. at 656.       Regarding the occupation-and-

use provision, the court opined: “Clauses similar to this one

have been construed in many cases, and it has never been held to

be an agreement to occupy and use the demised premises, but only

to restrict the purposes for which the premises may be used.”

Id. at 654.   The Weil court also declined to imply a continuous-

use requirement from the lease, even though the lease included a

percentage-rent provision.   Id. at 656.       According to the court,

because the contract was “plain and unambiguous,” there was no

reason for the court “to write into this contract a stipulation

which the parties themselves did not see fit to place therein.”

Id.   The court also noted that it would be problematic to read a

continuous-use requirement into the lease, because there would be

                                    6
no “certain and definite standard” by which to judge compliance

with such a requirement.   Id.

     Although the facts of Weil seem very similar to the facts of

this case, Kilgore argues, and the district court held, that the

language of the contract here and the circumstances surrounding

its execution are relevantly different from Weil.      As explained

below, however, we are not persuaded that any differences between

this case and Weil take this case outside of Weil’s holding.

     Kilgore presents three textual arguments for distinguishing

Weil and for reading Section 4.01 as a continuous-operation

provision.   First, Kilgore points to the word “shall” in Section

4.01 and argues that this word makes the provision here, unlike

the provision in Weil, mandatory.      Second, Kilgore contends that

the plain meaning of the language here, which is different from

the language in Weil, requires Brookshire to operate a grocery

store continuously in the leased premises.     Third, Kilgore argues

that the use of active and passive clauses in Section 4.01 both

distinguishes this case from Weil and points to the correct

interpretation of the Section: because of the presence of the

passive clause, the active clause can serve no purpose other than

to require continuous operation.

      We note, at the outset, that the court in Weil did not

quote the occupation-and-use provision in full, so it is not

clear whether the contract employed active or passive language;

nor is it clear whether the language included the word “shall.”

                                   7
The language quoted in Kilgore’s brief (“the premises are

rented”) was the court’s, not the contract’s.    Thus,

distinguishing Weil on these two grounds, as Kilgore would have

us do, is problematic.    Even assuming that the language in this

case is different from the language in Weil, however, we are

still not persuaded by Kilgore’s textual arguments.

     First, we do not find that the word “shall” distinguishes

this case from Weil.     We agree that the word “shall” makes

Section 4.01’s commandments binding on Brookshire, but we believe

that the word makes abiding by the use restriction, rather than

continuously operating the leased premises, compulsory.     In Palm

v. Mortgage Investment Co. of El Paso, a Texas court held that no

implied covenant to operate a shoe store of the same size and

character as had been previously operated arose from the

following provision: “Said premises shall be used only for the

purpose of a shoe store for retail business and shoe repair

shop . . . and for no other purposes whatsoever.”    229 S.W.2d

869, 870 (Tex. Civ. App.--El Paso 1950, writ ref’d n.r.e.)

(emphasis added).   The court noted that “it may be questioned

whether there was any implied obligation on the part of the

lessee to occupy the premises at all.”     Id. at 873.   If the word

“shall” in a use-and-operation provision does not create an

implied covenant to operate continuously under Texas law, then

surely it does not create an express covenant to do so.

     Furthermore, we find that the phrases “use and occupy” and

                                   8
“during the term of the Lease” in the parties’ contract do not

differentiate this case from Weil.    As previously noted, the

premises in Weil were rented “for occupation and use [as a

clothing store]” and the court held that this was a use

restriction rather than a continuous-operation requirement.      We

see no relevant difference between the phrase used in this lease

(“use and occupy”) and the phrase used in the Weil lease (“for

occupation and use”).   Nor do we believe that the addition of the

phrase “during the term of the Lease” in this contract, which was

absent from the Weil contract, changes the nature of the

provision; this language simply reiterates that the restriction

on use expires when the lease expires.

     Finally, we do not agree with Kilgore’s contention regarding

the relevance of both a passive and an active clause in Section

4.01.   The passive clause (“[t]he Leased Premises are leased to

TENANT”) and the active clause (“TENANT shall use and occupy the

[leased premises for certain purposes]”) both serve a purpose,

even if we interpret Section 4.01 as a restrictive-use provision.

The passive phrase describes the purposes for which the premises

were leased and the active phrase commands the tenant to use the

premises solely for those purposes.   Thus, our reading of Section

4.01 as a restrictive-use provision gives effect to both

provisions.

     Kilgore argues that, even if the language of the contracts

here and in Weil are not relevantly different, the circumstances

                                 9
surrounding the contracts’ executions distinguish the two cases.

First, Kilgore points to Section 4.02 of the lease agreement,

which has no counterpart in Weil, and which requires Brookshire

to operate at least 75% of the store if the premises were

subleased in part.   Second, Kilgore finds it significant that

Brookshire, unlike the defendant in Weil, was the anchor tenant

of the shopping center.

     Although we recognize that the Weil contract did not have a

similar subleasing provision, and that the Weil defendant was not

an anchor tenant, are unpersuaded that these factors should be

central to our analysis.   The meaning of Section 4.01, as both

parties agree, is plain and unambiguous under Texas law.    Thus,

we need not look to either the other provisions of the contract

or the surrounding circumstances to shed light on the provision.

See Republic Nat’l Bank of Dallas v. Nat’l Bankers Life Ins. Co.,

427 S.W.2d 76, 80 (Tex. Civ. App.--Dallas 1968, writ ref’d

n.r.e.) (“Courts do not resort to arbitrary rules of construction

where the intention of the parties is clearly expressed in

unambiguous language.”).   These observations would be more

relevant if Kilgore argued that Brookshire had an implied duty to

operate continuously, but Kilgore strenuously contends that

Brookshire explicitly--not implicitly--covenanted to do so.      See

Weil, 281 S.W.2d at 654 (commenting that an argument in favor of

reading the occupation-and-use provision in conjunction with

other provisions in the contract was an “argument . . . more in

                                10
favor of an implied covenant to use and occupy than an expressed

one”).

     In sum, we find that Weil controls the case at hand.      Thus,

we hold that the restrictive-use provision in parties’ lease

agreement does not require Brookshire to use the premises as a

grocery store continuously during the lease term.      As seen in

Weil, the existence of a percentage-rent provision does not

change this result.   See also Scot Props., 138 F.3d at 575-76

(finding no implied requirement of continuous operation under a

lease agreement, even though the agreement included a percentage-

rent provision).   Brookshire pays a substantial amount of minimum

rent to Kilgore: $93,564 per year.      Cf. Nalle v. Taco Bell Corp.,

914 S.W.2d 685, 688-89 (Tex. App.--Austin 1996, writ denied).

Thus, it is not necessary--indeed, it would be inappropriate--to

imply from the percentage-rent provision that the parties

intended for Brookshire to operate continuously.      Regardless, as

pointed out by the district court, the existence of a percentage-

rent provision points more toward an implied covenant to operate

than an express covenant, and the parties here agree that this is

an express-covenant case.

     Texas courts have long required specificity in creating

continuous-operation provisions.       See Weil, 281 S.W.2d at 654;

cf. Palm, 229 S.W.2d at 873-74.    The parties to this lease had

the option of inserting an express provision requiring Brookshire

to operate continuously, but they chose not to do so.      Thus, we

                                  11
hold that the lease agreement, and Section 4.01 in particular,

does not require Brookshire to operate a grocery store

continuously in the leased premises during the term of the lease,

but, instead, merely restricts the purposes for which Brookshire

may use the leased property.

                           III.   Conclusion

     Accordingly, we REVERSE the district court’s grant of

summary judgment in favor of Kilgore, REVERSE the district

court’s denial of summary judgment for Brookshire, and RENDER

judgment for Brookshire.    Costs shall be borne by Kilgore.

                                   12