Court Opinion

ID: 819799
Source: CourtListenerOpinion
Date Created: 2013-02-06 17:01:31.349313+00
Date Added: 2024-06-11T09:03:00.727799
License: Public Domain

FILED
                                                 United States Court of Appeals
                    UNITED STATES COURT OF APPEALS       Tenth Circuit

                           FOR THE TENTH CIRCUIT                       February 6, 2013

                                                                     Elisabeth A. Shumaker
                                                                         Clerk of Court
FAIRFAX PORTFOLIO, LLC,

             Plaintiff/Counter-
             Defendant-Appellant,
                                                           No. 12-3126
v.                                                (D.C. No. 2:11-CV-02007-CM)
                                                            (D. Kan.)
OWENS CORNING INSULATING
SYSTEMS, LLC,

             Defendant/Counter-
             Claimant-Appellee.

                            ORDER AND JUDGMENT*

Before ANDERSON and BALDOCK, Circuit Judges, and BRORBY, Senior Circuit
Judge.

      This appeal involves a landlord-tenant dispute that was removed from a

Kansas state court and filed in the District of Kansas based on diversity of

citizenship. The landlord is plaintiff/counter-defendant Fairfax Portfolio, LLC

(Fairfax), and the tenant is defendant/counter-claimant Owens Corning Insulating

*
      After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Systems, LLC (Owens Corning). In the district court proceedings, the parties filed

cross-motions for summary judgment. In addition, Fairfax filed a motion to certify a

question of law to the Kansas Supreme Court concerning its claim that Owens

Corning was a holdover tenant and thus liable for holdover rent under the terms of

the parties’ lease agreement.

      The district court denied Fairfax’s motion to certify and entered summary

judgment in favor of Owens Corning, concluding that Owens Corning was not liable

for holdover rent under the provisions of the parties’ lease agreement and that Fairfax

had failed to preserve a separate claim against Owens Corning for a holdover tenancy

by operation of law. The court therefore entered a judgment in favor of Owens

Corning on its counterclaim and directed Fairfax to return Owens Corning’s security

deposit in the amount of $42,102.08. The court also awarded Owens Corning

prejudgment interest and reasonable attorneys’ fees and costs. Exercising

jurisdiction under 28 U.S.C. § 1291, we affirm. We also deny the renewed motion to

certify that Fairfax has filed in this court pursuant to 10th Cir. R. 27.1 and Kan. Stat.

Ann. § 60-3201.

      A. Factual Background

      In January 2008, Fairfax and Owens Corning entered into a lease agreement

pursuant to which Fairfax agreed to lease a warehouse storage facility to Owens

Corning. Although the initial term of the lease terminated on December 3, 2008, the

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parties subsequently executed an amendment to the lease agreement which extended

the term of the lease until December 3, 2009.

      Under the terms of the lease agreement, Owens Corning was required to

maintain the premises in good condition and to repair any damage it caused to the

premises. See § 10 of Lease Agreement (Aplt. App. at 50). In particular, the lease

agreement specified that “[a]ny damage to building columns and walls as a result of

Tenant’s use of the Premises shall be repaired by Tenant promptly after such damage

occurs and no later than expiration of the term of the Lease.” Id. § 32 (Aplt. App.

at 60). The lease agreement also contains a section entitled “Surrender of Premises

and Holding Over.” Id. § 18 (Aplt. App. at 57). The latter section provides, in

relevant part, as follows:

             Upon the expiration . . . of this Lease, . . . Tenant shall
      immediately surrender the Premises to Landlord, together with all
      alterations and improvements as provided herein, in broom-clean
      condition and in good order, condition and repair, except for ordinary
      wear and tear . . . .

             If Tenant holds over after the expiration of the Initial Term or
      Renewal Term, if applicable, Tenant shall become a tenant on a
      month-to-month tenancy at monthly rent equal to 150% of the Rent in
      effect during the last full month of the preceding term.

Id.

      When the amended lease agreement expired in December 2009, it is

undisputed that Owens Corning fully vacated the leased premises and returned the

keys to the premises to Fairfax. It is also undisputed that Owens Corning did not use

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the leased premises as a warehouse storage facility at any time after December 3,

2009.

        However, during an inspection of the leased premises following Owens

Corning’s departure, Fairfax discovered a number of items on the property that were

in need of repair. Specifically, according to Fairfax, “[t]he property had sustained

substantial structural damage to areas including its walls, windows, and support

beams.” Aplt. Br. at 4 (citing Aplt. App. at 74-75). To remedy this situation, Fairfax

and Owens Corning subsequently agreed that Owens Corning would repair the

damaged items at its own expense. Towards this end, Fairfax returned the keys to the

leased premises to Owens Corning, and Owens Corning hired contractors to perform

the repair work. Ultimately, Owens Corning paid its contractors over $40,000 to

make repairs to the leased premises. The repairs were completed to Fairfax’s

satisfaction and Owens Corning returned the keys to the premises to Fairfax on April

19, 2010.

        In November 2010, Fairfax filed a lawsuit against Owens Corning in a Kansas

state court, alleging that: (1) “Defendant was a ‘holdover tenant’ during the time that

defendant had possession of the premises to repair the damage”; and (2) “Pursuant to

the terms of the lease, defendant owes rent during the holdover tenancy at the rate of

150% of the stated monthly rent.” Aplt. App. at 13. Fairfax claimed it was therefore

entitled to a judgment against Owens Corning in the amount of $118,240.62, “after

giving credit for [Owens Corning’s] security deposit.” Id. As noted above, Owens

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Corning removed the case to the District of Kansas based on diversity of citizenship,

and it then filed a counterclaim against Fairfax seeking the return of its security

deposit, alleging it was not liable to Fairfax for any holdover rent during the time that

the leased premises were being repaired.

       B. The Pretrial Order

       In September 2011, the district court entered a pretrial order. Because it is

relevant to the district court’s summary judgment rulings, we will briefly summarize

the pertinent parts of the pretrial order.

       As a starting point, the pretrial order stated that it “shall supersede all

pleadings and control the subsequent course of this case. It shall not be modified

except by consent of the parties and the court’s approval, or by order of the court to

prevent manifest injustice.” R., Doc. 28 at 1.

       Next, under the section of the pretrial order entitled “Nature of the Case,”

Fairfax stated it was “claim[ing] damages for breach of a lease contract.” Id. Fairfax

explained its theory of the case under the section of the pretrial order entitled

“Plaintiff’s Contentions.” According to Fairfax:

              The lease contains provisions for payment of rent, and that
       includes rent to be paid by the defendant as a “holdover tenant” if the
       defendant remains in possession of the building after the expiration of
       the lease. The lease required the tenant to repair any damage before
       surrendering the premises to the landlord.

              The lease expired on December 3, 2009. The lease provided for
       rent in the sum of $32,068.54 per month. The lease provided that the
       rent to be paid by a ‘holdover tenant’ was 150% of the lease rate, or
       $48,102.81 per month. The tenant surrendered possession of the

                                             -5-
       building to the landlord on April 19, 2010. The tenant was a ‘holdover
       tenant’ for five months, so the holdover rent that’s owed is $160,342.70.

Id. at 3.

       Finally, under the section of the pretrial order entitled “List of Plaintiff’s

Theories of Recovery,” Fairfax “assert[ed] that it [was] entitled to recover from the

defendant based on breach of contract.” Id. at 5. Under the following section of the

pretrial order entitled “Essential Elements of Plaintiff’s Theory of Recovery (breach

of contract),” Fairfax stated that it had the burden of proving that: (1) “Defendant

remained in possession of the commercial warehouse until April 19, 2010”; and

(2) “As a result, defendant was a ‘holdover tenant’ and owes rent as “holdover

tenant[,]” under the lease.” Id. at 5-6.

       C. Fairfax’s Summary Judgment Arguments

       As noted above, the parties filed cross-motions for summary judgment in the

district court proceedings. Although we do not need to summarize all of the

arguments advanced by the parties in support of their respective motions, the

memorandum that Fairfax submitted to the district court in support of its motion for

summary judgment contains arguments that are pivotal to our disposition of this

appeal. As a result, we need to briefly summarize those arguments.

       In its summary judgment memorandum, Fairfax began its analysis by noting

that “there is very little available on the issue of what exactly constitutes a holdover

tenancy under Kansas law when leased commercial property has been left in dire

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need of repair following the lease’s termination.” Aplt. App. at 35. But according to

Fairfax:

      Other courts have explored the issue in different ways. The two main
      analyses involve 1) the rules of contract construction; or 2) an
      investigation into the magnitude of the damage. Here, both approaches
      are satisfied: first, the lease specifically provides for the possibility of a
      holdover tenancy should the property not be returned to plaintiff in the
      proper condition; second, the damage to the property was significant.
      Therefore, defendant should be treated as a holdover tenant.

Id. Fairfax then proceeded to analyze this case under both approaches in two

separate sections of its memorandum. Id. at 36-43.

      In the first section of its memorandum, Fairfax addressed the provisions of the

lease agreement, beginning its analysis by stating that “[t]he lease agreement includes

a clause that specifically provides for the possibility of a holdover tenancy. That

provision was triggered when the premises were not returned to plaintiff in good

condition as required by the lease agreement.” Id. at 36. After discussing the

decisions in Prospect Hill Acquisition, LLC v. Tyco Electronics Corp., 414 F.3d 181

(1st Cir. 2005), Pinole Valley Trucking, Inc. v. Texas Development Co.,

No. 01-08-00599-CV, 2009 WL 1025750 (Tex. App. April 16, 2009) (unpublished),

and Swanson v. Public Storage, Inc., No. 00-2490-JWL, 2001 WL 584457 (D. Kan.

May 18, 2001) (unpublished), Fairfax then summarized its “contractual” arguments

based on the provisions of the lease agreement as follows:

             Here, the lease agreement specifically provides for the possibility
      of a holdover tenancy. Under the lease, defendant was required to
      “maintain the premises in a condition and repair commensurate with
      buildings of a similar class and character,” reasonable wear and tear

                                          -7-
      excepted. Defendant was expected to maintain on-site equipment,
      machinery, and fixtures, along with the HVAC systems, floors, walls,
      and doors. Furthermore, the lease provides that, upon expiration of the
      lease, defendant was required to return possession of the subject leased
      property to plaintiff “in good order, condition, and repair,” ordinary
      wear and tear excepted. If these requirements were not met, defendant
      would become a holdover tenant.

             When defendant first tried to return possession of the premises to
      plaintiff, it was in a severe state of disrepair. The damage included, but
      was not limited to, broken fixtures and signs, along with damage to the
      walls, the floor, roll up doors, and a number of support columns. Some
      of the damage constituted a safety hazard. Much of that damage,
      including the damage to the walls, floor, and roll up doors, was
      specifically left to the maintenance of defendant under the lease
      provisions. This was more than just ordinary wear and tear. Thus,
      according to the lease agreement, defendant became a holdover tenant
      when it failed to return the premises to plaintiff in proper condition at
      the expiration of the lease.

Aplt. App. at 38-39.

      The second section of Fairfax’s summary judgment memorandum was entitled

“Defendant was a holdover tenant because its treatment of the property resulted in

extreme damage requiring significant structural repairs.” Id. at 39. In this section,

Fairfax discussed the decisions in Cammack the Cook, L.L.C. v. Eastburn,

296 S.W.3d 884 (Tex. App. 2009), Creative Cabinets, Inc. v. Jorrie, 538 S.W.2d 207

(Tex. App. 1976), Longmier v. Kaufman, 663 S.W.2d 385 (Mo. Ct. App. 1983), and

Consumers Distributing Co. v. Hermann, 812 P.2d 1274 (Nev. 1991) (per curiam). It

then summarized its “magnitude of the damage” arguments as follows:

             This case is more like Cammack the Cook, Creative Cabinets,
      and Longmier. Here, defendant’s treatment of the property resulted in
      significant damage. Upon inspection, plaintiff discovered damage
      including broken fixtures, thermostats and signs, along with damage to

                                         -8-
      the walls, the floor, and support columns. In contrast to Consumers,
      this amounted to major structural damage. Two contractors were
      required to make all of the appropriate repairs. Many of the columns
      that supported the roof had to be restored. At one point, the roof
      required extra support while the columns were repaired. A structural
      engineer was required to assess whether the repair to the damaged
      columns was sufficient to support the weight of the roof; an engineer
      was also necessary to inspect the welding of the columns. This was not
      simple touch-up work.

Aplt. App. at 42-43.

      In sum, Fairfax argued to the district court that it was entitled to summary

judgment on the holdover issue based on two separate and distinct theories. First,

Fairfax argued that it was entitled to summary judgment based on the provisions in

the lease agreement. Second, Fairfax argued that it was entitled to summary

judgment by operation of law due to the extreme nature of the damage that Owens

Corning allegedly caused to the leased premises. As explained more fully below, the

district court referred to the latter theory as Fairfax’s “constructive holdover” theory.

      D. The District Court’s Summary Judgment Rulings

      The district court entered two orders regarding the parties’ cross-motions for

summary judgment. The first order was entered on January 17, 2012, and the second

order was entered on April 5, 2012. Both orders are germane to this appeal, and we

therefore discuss them in turn.

      1. The Order Entered by the District Court on January 17, 2012

      In its first summary judgment order, the district court stated that “[t]he issue

before the court—as framed by plaintiff—is whether, under Kansas law, a tenant

                                          -9-
who, at the expiration or termination of a lease of a commercial warehouse, retains

possession of the property in order to repair structural damage is considered a

‘holdover tenant’ for the time necessary for the tenant to make the repairs.” Aplt.

App. at 372. Although the court acknowledged that “the Kansas Supreme Court has

not decided the particular question presented by this set of facts,” id. at 375, the court

nonetheless denied Fairfax’s motion to certify a question of law to the Kansas

Supreme Court under Kan. Stat. § 60-3201. The court explained that it “is often

required to predict how the Kansas courts would decide particular questions of state

law,” Aplt. App. at 375, and the court concluded that “certification would [not]

conserve the time, energy, and resources of the parties or the court,” id.

      Having denied the motion to certify, the court then proceeded to address the

merits of Fairfax’s argument that it was entitled to summary judgment on its claim

for holdover rent based on the terms of the lease. As the court noted, Fairfax

“argue[d] that it [was] entitled to summary judgment because the terms of the lease

create[d] a holdover tenancy where property [was] not returned in proper condition.”

Id. at 376. The court rejected this argument, however, because it determined that

“[t]he terms of the lease do not unambiguously dictate that defendant should be

treated as a holdover tenant on the facts presented.” Id. The court explained its

reasoning as follows:

             Section 18 of the lease agreement requires defendant, upon
      expiration of the lease term, to surrender the property in good repair. It
      then states, in the next paragraph, that a tenant “hold[ing] over” after the
      expiration of the lease becomes a month-to-month tenant at a rate of

                                          - 10 -
       150 percent rent. Although these surrender conditions and holdover
       provisions appear in the same section of the lease agreement, they are in
       two distinct paragraphs. Plaintiff points to this proximity for the
       proposition that failure to surrender the property “in broom-clean
       condition”—as opposed to mere failure to surrender—triggers the
       holdover provision. The court is unconvinced.

              The court finds that the contract is not ambiguous. Ambiguity
       does not arise unless there is genuine uncertainty as to which of two or
       more possible meanings is proper; where in common sense there is no
       ambiguity, the court will not strain to create ambiguity. Crescent Oil
       Co., Inc., v. Federated Mut. Ins. Co., 888 P.2d 869, 872-73 (Kan. Ct.
       App. 1995). Despite plaintiff’s arguments, the plain and ordinary
       meaning of the term “holding over” in this section of the lease
       agreement refers to the failure to surrender property, not failure to make
       required repairs or failure to surrender in a particular condition. See
       49 Am. Jur. 2d § 354 (1995) (stating that “[a] tenant who does not
       abandon or relinquish the premises after the lease expires or is lawfully
       declared terminated by the lessor, but who remains in possession, is
       holding over”)[1]; Black’s Law Dictionary (9th Ed. 2009) (defining
       “holdover tenant” as “[a] person who remains in possession of real
       property after a previous tenancy (esp. one under a lease) expires, thus
       giving rise to a tenancy at sufferance”). Plaintiff offers no evidence that
       the parties intended any other meaning, and it would defy common
       sense to read section 18 as triggering the holdover provision where a
       tenant has surrendered the property but makes certain repairs after the
       expiration of the lease.

Id. at 378.

       The court next addressed “the issue of whether, putting aside the terms of the

lease, the defendant should nevertheless be treated as a holdover tenant by operation

of law.” Id. at 379. As the court noted, this issue arose during the parties’ summary

1
       We note that the language quoted by the district court from 49 Am. Jur. 2d
§ 354 is now located in 49 Am. Jur. 2d § 275.

                                         - 11 -
judgment briefing, and the court referred to it as Fairfax’s “constructive holdover”

theory.

      The court began its analysis of Fairfax’s “constructive holdover” theory by

denying both parties’ requests for summary judgment on the theory. According to

the court, the cases argued by the parties in the summary judgment briefing indicated

that the question of whether to impose a holdover tenancy by operation of law in a

repair case depends on the “nature of the damage” to the leased property and the

“usability and/or leasability of the property” during the time that the tenant is making

repairs, and the court determined that “these facts are disputed” in this case. Id. This

did not end the court’s inquiry, however, because the court went on to note that

Fairfax had only asserted a claim for breach of contract in the pretrial order. As a

result, “[e]ven if the Kansas courts would permit a landlord to pursue damages based

on a ‘constructive holdover’ theory, the court [was] uncertain that such a theory can

arise from a breach of contract claim.” Id. at 381. The court “therefore directed

[Fairfax] to show cause why it should be permitted to pursue this ‘constructive

holdover’ theory at trial,” and it set a briefing schedule for both sides to submit briefs

on the issue. Id.

      2. The Order Entered by the District Court on April 5, 2012

      At the time the district court entered its second summary judgment order, the

court had received the parties’ briefs concerning the issue of whether Fairfax should

                                          - 12 -
be permitted to pursue a “constructive holdover” theory at trial. As a result, the court

was “ready to rule” on that issue. Id. at 398.

      Before addressing Fairfax’s “constructive holdover” theory, however, the court

summarized its earlier ruling regarding Fairfax’s “contractual holdover” theory.

Specifically, the court reiterated that it “held that the contract is not ambiguous: the

plain and ordinary meaning of the term ‘holding over’ in Section 18 of the lease

agreement refers to the failure to surrender property, not failure to make required

repairs or failure to surrender in a particular condition.” Id. at 400.

      Given the district court’s holding concerning Fairfax’s “contractual holdover”

theory, Fairfax’s claim for holdover rent depended solely on whether the court would

permit it to pursue a “constructive holdover” theory. In its second summary

judgment order, the court decided not to permit Fairfax to pursue such a theory. The

court’s reasoning was as follows:

              Plaintiff chose to limit its case initially by pursuing the narrow
      theory that defendant breached the holdover provision in the lease. (Its
      reasoning for doing so could be that success on this claim would entitle
      it to 150 percent rent as opposed to some lessor amount). Plaintiff
      might have argued, on the undisputed facts, a general breach, or that
      defendant breached other obligations under the lease—such as the
      obligation to maintain the premises under Section 10A or to repair
      damage as required in Section 32. But plaintiff has never raised these
      as grounds for relief. As defendant notes, plaintiff initially pleaded, and
      consistently pursued, a single theory that the express holdover provision
      in the lease required defendant to pay rent at 150% of the lease rate for
      every month that the repair construction continued after expiration of
      the lease. The court has held that the holdover provision plaintiff seeks
      to enforce is not triggered by the facts.

                                          - 13 -
             The court does not believe that plaintiff should now be permitted
      to proceed on a theory of “constructive holdover,” which first appeared
      in briefing on summary judgment. The court finds that this is merely an
      attempt to use common law concepts—which are not clearly authorized
      under Kansas law—to pursue the benefit of the 150 percent penalty
      contained in the holdover provision that the court has already held is
      inapplicable here.

Id. at 402-03 (footnote omitted).

      Because the district court rejected both Fairfax’s “contractual” and its

“constructive” holdover theories, the court concluded in its second summary

judgment order that Owens Corning was entitled to summary judgment on Fairfax’s

claim for holdover rent and on its counterclaim for the return of its security deposit.

The court therefore entered a judgment in favor of Owens Corning in the amount of

$42,102.08.

      E. Disposition of This Appeal

      We commend the district court for its thorough and well-reasoned summary

judgment orders, and we summarily affirm the rulings of the district court.

      First, with regard to Fairfax’s “contractual holdover” theory, we conclude that

the district court correctly applied Kansas law in determining that the lease

agreement “is not ambiguous: the plain and ordinary meaning of the term ‘holding

over’ in Section 18 of the lease agreement refers to the failure to surrender property,

not failure to make required repairs or failure to surrender in a particular condition.”

Id. at 400. We also agree that it is undisputed that Owens Corning vacated and

surrendered the leased premises to Fairfax in December 2009. In fact, Fairfax

                                         - 14 -
specifically alleged in its September 9, 2011, Memorandum in Support of Motion for

Summary Judgment that “[Owens Corning] vacated the premises in December of

2009.” Id. at 26, ¶ 4. Accordingly, we affirm the district court’s entry of summary

judgment in favor of Owens Corning on Fairfax’s “contractual holdover” theory, and

we see no reason to certify a question of law to the Kansas Supreme Court.

       Second, in the briefs it has submitted to this court, Fairfax has utterly failed to

challenge the district court’s determination that it is barred from pursuing its

“constructive holdover” theory because it failed to preserve the theory in the pretrial

order. As a result, Fairfax has waived its right to appeal that ruling. See LifeWise

Master Funding v. Telebank, 374 F.3d 917, 927 n.10 (10th Cir. 2004) (concluding

that appellant waived its right to appeal rulings of district court that it did not

substantively address in its opening brief); Adler v. Wal-Mart Stores, Inc., 144 F.3d

664, 679 (10th Cir. 1998) (“Arguments inadequately briefed in the opening brief are

waived . . . .”). In addition, because this waiver is a matter of federal law, we again

see no reason to certify a question of law to the Kansas Supreme Court.

       The judgment of the district court is affirmed. Fairfax’s motion to certify is

denied.

                                                    Entered for the Court

                                                    Wade Brorby
                                                    Senior Circuit Judge

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