Court Opinion

ID: 22269
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:53:49+00
Date Added: 2024-06-11T15:03:55.585645
License: Public Domain

UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT

                       _______________________

                             No. 00-30217
                       _______________________

IN THE MATTER OF: JLH, L.L.C.,
                                                                Debtor.

CREDIT AGRICOLE INDOSUEZ, IN ITS CAPACITY AS AGENT ON BEHALF OF THE
LENDERS: HIBERNIA CORPORATION, CREDIT AGRICOLE INDOSUEZ, FIRST
SOURCE FINANCIAL L.L.P., PILGRIM PRIME RATE TRUST, ML CLO XII
PILGRIM AMERICA (CAYMAN) LTD., GENERAL ELECTRIC CAPITAL CORPORATION
AND IBJ WHITEHALL BANK & TRUST COMPANY,

                                                                Appellant,

                                   versus

JLH, L.L.C.,

                                                                 Appellee.

________________________________________________________________

           Appeal from the United States District Court
               for the Eastern District of Louisiana
                     Civil Docket #99-CV-3566-G
_________________________________________________________________

                            November 10, 2000

Before POLITZ, JONES, and STEWART, Circuit Judges.

EDITH H. JONES, Circuit Judge:*

          At   issue   in   this   case   is   the   interpretation    of   an

agreement reached in the bankruptcies of two companies.               Because

the agreement unambiguously required Credit Agricole Indosuez, as

agent, to pay $5,050,000 to JLH, and there were no substantial

     *
      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this opinion should not be published and is not precedent except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.
deficiencies in the process of the bankruptcy court, we affirm the

bankruptcy and district court judgments.

                                     FACTS

           JLH is a Louisiana limited liability company that owns

and   develops   real    estate.     It    leased      several    grocery   store

properties to SGSM Acquisition Co. (“SGSM”).                The grocery store

leases secured SGSM’s loans. Credit Agricole Indosuez is the agent

for SGSM’s creditors.

           In February 1999, SGSM negotiated an asset purchase

agreement (“APA”) to sell six leases for $62 million to the

SuperFresh/Sav-A-Center, Inc. (“A&P”).           JLH was the lessor in four

of these leases.    The APA required consents of all the lessors as

a condition of closing.

           In March 1999, SGSM filed a Chapter 11 reorganization

case in Delaware.        JLH filed its own Chapter 11 bankruptcy case

several days later.

           In March and April 1999, SGSM and A&P signed the first

and second amendments of the APA.          These amendments referenced and

added terms to the original APA. The second amendment included the

following clause:

      Section 5. Continued Effectiveness. Except as expressly
      amended hereby, the Purchase Agreement shall continue in
      full force and effect.

           In    April    1999,    SGSM    and   JLH    reached    a   tentative

settlement of various disagreements under which JLH would receive

$ 1 million for its consent to the APA.             Shortly thereafter, JLH

                                       2
asserted that it was unaware that A&P intended to alter the stores.

JLH renewed its objections to the lease transfers.    At this point,

Credit Agricole stepped in and offered an additional $ 4.05 million

of the sale proceeds to obtain JLH’s consent.    Credit Agricole and

JLH agreed to terms on June 16.        The following are excerpted

provisions from the agreement:

     Section 1.   Definitions:

     “Asset Purchase Agreement” shall mean that certain Asset
     Purchase Agreement between Super Fresh/Sav-A-Center, Inc.
     and [SGSM] dated as of February 26, 1999, as amended
     prior to the date hereof and as in effect on the date
     hereof attached as Exhibit D hereto.

     Section 3.   Agreements of [Credit Agricole]:

          (a) [Credit Agricole] shall cause in the aggregate
     $5,050,000 of the proceeds actually received by [Credit
     Agricole] pursuant to and in accordance with the Asset
     Purchase Agreement to be distributed to JLH (it being
     understood and agreed that said $5,050,000 includes the
     $1,000,000 to be distributed to JLH pursuant to the A &
     P Sale Order).

     Section 5.   Miscellaneous:

          (b) Interpretation. Neither this Agreement nor any
     uncertainty or ambiguity herein shall be construed or
     resolved against the JLH or [Credit Agricole].

          (d) Amendments: Waivers.      Except as expressly
     provided herein, no term or provision hereof or schedule
     or annex hereto shall be amended, supplemented or
     otherwise modified, except pursuant to a written
     instrument signed by each of the parties hereto.

The bankruptcy court presiding over JLH’s Chapter 11 proceedings in

Louisiana approved the June 16 agreement.

          Following this agreement, a dispute arose between the

parties to the APA over taxes and inventory.    As a result, SGSM and

                                   3
A&P signed the third amendment to the APA on July 15.          This

amendment referred to the original APA and reduced the purchase

price of the leases from $ 62 million to $ 56.9 million.

           On July 28, JLH’s attorneys wrote counsel for Credit

Agricole to confirm that JLH would still receive $ 5.05 million.

In an August 3 letter, Credit Agricole’s attorneys expressed their

disappointment that the president of JLH had not consented to a pro

rata reduction of the $ 5.05 million in light of the new purchase

price.   JLH responded on August 6 that it was still entitled to the

entire $ 5.05 million.

           Despite this dispute, JLH fulfilled its obligations under

the June 16 agreement to facilitate the closing in September.

After the closing, Credit Agricole issued only $ 1 million of the

sale proceeds to JLH.

           JLH then filed a motion in the bankruptcy court in

Louisiana to enforce that court’s order approving the June 16

agreement.   The bankruptcy court found that the June 16 agreement

was not ambiguous and issued an enforcement order in September 1999

requiring Credit Agricole to pay JLH $ 4.05 million.

           The district court affirmed the enforcement order in

January 2000.   It observed that the June 16 agreement attached the

then-current APA as an exhibit.    The court reasoned that in light

of the “Amendments: Waivers” clause in § 5(d), the parties could

not alter their obligations without a formal amendment substituting

a new APA.   The court further ruled that the third amendment did

                                  4
not materially change or supersede the APA as it existed on June

16.

          Credit Agricole now brings this appeal, challenging the

courts’ interpretation of the agreement and the procedures used by

the bankruptcy court.

                              DISCUSSION

          We review the bankruptcy court’s interpretation of the

contract de novo, using the same criteria as that court.                 See St.

Martin v. Mobil Exploration & Producing U.S., Inc., 224 F.3d 402,

409 (5th Cir. 2000).    New York law applies to this agreement.

          Credit Agricole argues that the closing of the APA as it

existed on June 16 was a condition precedent to its duty to pay the

remaining $4.05 million.      It notes that the June 16 agreement

defines the APA “as amended prior to the date hereof and in effect

on the date hereof attached as Exhibit D hereto.”             Credit Agricole

also argues   that   the   June   16       agreement   only   required   Credit

Agricole to pay money from “the proceeds actually received . . .

pursuant to and in accordance with the [APA],” as defined above.

Under this interpretation, the third amendment materially altered

the APA and the contract itself does not obligate Credit Agricole

to pay JLH anything.

          Credit Agricole argues that the § 5(d) requirement that

any amendment be in writing supports this interpretation, since the

parties did not agree to any modification encompassing the third

                                       5
amendment to the APA.          Credit Agricole also argues that only its

interpretation makes economic sense, since it would not have

contracted to pay JLH $ 4.05 million regardless of how small the

purchase price might become.

              JLH contends that the APA was a single agreement.                    As

evidence, JLH points to the § 5 “Continued Effectiveness” clause of

the APA.      Under this interpretation, Credit Agricole did receive

funds “pursuant to the [APA].”               JLH fully complied with all the

terms    of   the     agreement   even   after    the     third    amendment.      It

therefore reasons that Credit Agricole is still required to pay the

$ 4.05 million.

              JLH also points to § 5(d) “Amendments: Waivers” provision

of the June 16 agreement.         It argues that Credit Agricole could not

duck its obligations without the written consent of both parties.

              JLH argues that even if the June 16 agreement were

ambiguous,      the     parties   did    not     intend    to     condition     their

obligations on the APA closing in its precise form on June 16.                     In

other words, JLH argues that it would not have contracted to allow

any minor change in the APA to eliminate its right to payment.1

              Contrary    to   Credit    Agricole’s        view,    the   “actually

received” language in § 3(a) is not a condition precedent to Credit

     1
          JLH also argues that Credit Agricole should face judicial
or equitable estoppel, since the bank did not renounce its
obligation to pay the $4.05 million while JLH completed its duties
at the September closing. Of course, JLH already had notice at
this point of the dispute from its communications with Credit
Agricole in July and August. We do not reach the estoppel issue.

                                         6
Agricole’s duty to pay under current New York law.             A condition

precedent is “an act or event . . . [which] . . . must occur before

a duty to perform a promise in the agreement arises.”          Oppenheimer

& Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 418 (N.Y.

1995).    “Conditions can be express or implied.       Express conditions

are those agreed to and imposed by the parties themselves.”            Id.

Implied or constructive conditions are those which courts impose to

do justice.    Id.   “Express conditions must be literally performed,

whereas    constructive   conditions,    which    ordinarily   arise   from

language of promise, are subject to the precept that substantial

compliance is sufficient.”     Id.

            Express conditions are marked by unambiguous language.

While they need not use the term “condition precedent,” provisions

that employ “the unmistakable language of condition (‘if,’ ‘unless

and until’)” are express conditions.             Id. (finding an express

condition where a sublease was “null and void” “unless and until”

plaintiff received landlord’s consent); see also A.H.A. General

Constr., Inc. v. New York City Hous. Auth., 699 N.E.2d 368, 370

(N.Y. 1998) (finding an express condition where plaintiff was

required to file a claim to receive compensation and “upon failure

[to comply], such claims shall be deemed waived”).         Other language

clearly demonstrating an intent to create a condition will also

suffice.      See Hatzel & Buehler v. Lovisa Constr. Co., 1993 U.S.

Dist. LEXIS 9899, at *5 (E.D.N.Y. 1993) (finding a condition

precedent where the subcontractor agreed to be paid “only from

                                     7
funds received by Contractor from Owner and that the intent of the

parties is that Subcontractor assumes the credit risk incurred by

the Contractor as respects payment by the owner”).

           In   addition,   New   York   courts   construe   pay-when-paid

provisions like § 3(a) to establish only the time of payment unless

the provision expressly conditions the duty to pay.           “A contract

provision stating that payment will occur upon a stipulated event

will be construed as a time for payment provision unless there is

express language to the contrary in the contract.” West-Fair Elec.

Contractors v. Aetna Cas. & Sur. Co., 661 N.E.2d 967, 970 (N.Y.

1995) (finding an express condition because the provision made

payment from the third party a “condition precedent,” but holding

that such express conditions violated the New York Lien Law with

respect to contractors).      Schuler-Haas Elec. Co. v. Aetna Cas. &

Sur. Co., 357 N.E.2d 1003 (N.Y. 1976) also exemplifies this rule of

construction.    In that case, the plaintiff’s right to payment was

subject to the contract between the owner and general contractor,

and the plaintiff would receive payment when the owner made full

payment.   The New York Court of Appeals held that

     [i]f as here there is no express language to the contrary
     in the written document (and no extrinsic evidence), the
     standard would seem to be that where payment is
     stipulated to occur on an event, the occurrence of the
     event fixes only the time for payment; it is not to be
     imported as a substantive condition of the legal
     responsibility to pay.

Id. at 1003 (emphasis added).

                                     8
              The Court of Appeals has held that a contract provision

similar to § 3(a) did not create a condition precedent.                       In

Grossman Steel and Aluminum Co. v. Samson Window Corp., 426 N.E.2d
176   (N.Y.    1981),   the    court   held   that   a   promise   to   pay   a

subcontractor “as and when [contractor receives] such payment from

the [owner]” was not a condition precedent.2

              Credit Agricole argues that this case resembles Mascioni

v. Miller, 184 N.E. 473 (N.Y. 1933).          The contractor-subcontractor

agreement in that case provided for “[p]ayments to be made as

received from the Owner.”        The Court of Appeals considered payment

from the owner a condition precedent.          Grossman, Schuler-Haas and

West-Fair have supplanted this case.

              Turning to § 3(a) of the June 16 agreement, there is no
                                                                               3
express language conditioning Credit Agricole’s duty to pay.

Though “actually received . . . pursuant to and in accordance with

the [APA]” implies that the duty is conditional, it is not express

conditional language.         Here there is no unmistakable language of

condition such as “if” or “unless and until.”                  The June 16

agreement does not state that it would be null and void if the APA

      2
          The text of the contract is in the decision below,
Grossman Steel and Aluminum Co. v. Samson Window Corp., 78 A.D.2d
871, 871 (N.Y. App. Div. 1980).
      3
          “[When] determining whether a particular agreement makes
an event a condition courts will interpret doubtful language as
embodying a promise or constructive condition rather than an
express condition.    This interpretive preference is especially
strong when a finding of express condition would increase the risk
of forfeiture by the obligee.” Oppenheimer, 86 N.Y.2d at 418.

                                       9
did not close in its then-current form.    Nowhere does JLH agree to

accept the risk that the APA might close in a different form, or

that it relies on the credit of A&P.   The APA’s closing in its form

as of June 16 was not expressed as “a material part of the agreed

exchange.”    See Oppenheimer & Co., Inc. v. Oppenheim, 660 N.E.2d
415, 418 (N.Y. 1995) (citing Restatements (Second) of Contracts §

229).

           At least one Appellate Division court concurs.   See Mass

Transp. Elec. Constr. Corp. v. Penta Constr. Corp., 140 A.D.2d
174, 176 (N.Y. Ct. App. 1988) (finding no condition precedent where

the “Contractor’s obligation to make payment to the Subcontractor

shall be limited to funds actually received by the Contractor from

the Owner . . .”).      The language of § 3(a) could at best be a

promise or constructive condition to Credit Agricole’s duty to pay.

           A New York court would not, however, constructively

condition Credit Agricole’s duty to pay on the APA’s closing in its

precise form as of June 16.     It would only impose a constructive

condition to promote justice. See Oppenheimer, 660 N.E.2d at 418.

 It would construe the June 16 agreement to prevent JLH from

forfeiting its right to payment due to circumstances beyond its

control.     See id.   Here, JLH performed its obligations under the

contract. Credit Agricole actually received money under an amended

version of the APA.     Therefore, there is no basis for enforcing a

constructive condition, and Credit Agricole has an unconditional

duty to pay JLH.

                                  10
           From the foregoing discussion, it should be clear that

this agreement is not ambiguous.           It specifies a concrete amount

for JLH to receive and does not suggest that this figure would ever

change without JLH’s consent. It does not mention the original $62

million purchase price, and nowhere does it hint that what JLH

receives is contingent on the final purchase price.             While it might

appeal to one’s sense of fairness to reduce JLH’s payment pro rata,

nothing    in    the    agreement    would     make      this   a   reasonable

interpretation of its terms.

           Credit Agricole also challenges the bankruptcy court’s

procedure in entering an order to enforce the parties’ settlement

agreement rather than requiring the commencement of an adversary

proceeding and a Rule 7056 summary judgment procedure.                 As JLH

notes,    however,      the   district     court   essentially      cured   any

jurisdictional problem -- and superseded any bankruptcy procedural

misstep, if there was one -- by ruling on the dispute de novo.

Credit Agricole has neither asserted that any particular discovery

was needed to develop the record nor explained exactly what it

would have proved that is relevant to the interpretation of this

unambiguous contract.         In this case, any procedural difficulties

are settled by the rule of no harm, no foul.

           For    the    foregoing   reasons,      the    judgments    of   the

bankruptcy court and district court are AFFIRMED.

                                      11