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Fortune Funding v. Ceridian Corp., 02-4031 (2004)

Court: Court of Appeals for the Eighth Circuit Number: 02-4031 Visitors: 16
Filed: Jun. 02, 2004
Latest Update: Mar. 02, 2020
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ No. 02-4031 _ Fortune Funding, LLC, a Florida * Limited Liability Company, * * Appellant, * * Appeal from the United States v. * District Court for the * District of Minnesota. Ceridian Corporation, a Delaware * Corporation, * * Appellee. * _ Submitted: December 19, 2003 Filed: June 2, 2004 _ Before MORRIS SHEPPARD ARNOLD, LAY, and RILEY, Circuit Judges. _ RILEY, Circuit Judge. Fortune Funding, LLC (Fortune) sued Ceridian Corporation (Cerid
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                  United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 02-4031
                                  ___________

Fortune Funding, LLC, a Florida       *
Limited Liability Company,            *
                                      *
             Appellant,               *
                                      * Appeal from the United States
      v.                              * District Court for the
                                      * District of Minnesota.
Ceridian Corporation, a Delaware      *
Corporation,                          *
                                      *
             Appellee.                *
                                 ___________

                        Submitted: December 19, 2003
                            Filed: June 2, 2004
                                 ___________

Before MORRIS SHEPPARD ARNOLD, LAY, and RILEY, Circuit Judges.
                         ___________

RILEY, Circuit Judge.

       Fortune Funding, LLC (Fortune) sued Ceridian Corporation (Ceridian),
alleging (1) Ceridian breached a lease agreement between Fortune and Ceridian
(Lease); (2) committed waste of the leased property; and (3) in 1985, fraudulently
misrepresented the leased property’s condition. On cross-motions for summary
judgment, the district court1 granted partial summary judgment to Ceridian on

      1
     The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
Fortune’s breach of contract and waste claims. The district court concluded a
material issue of fact remained as to whether Ceridian fraudulently misrepresented
the leased property’s condition. After trial on the fraud claim, a jury found Ceridian
had not made a false representation. Fortune appeals. We affirm.

I.     BACKGROUND
       In 1971, Ceridian built a fourteen-story office tower (Tower) in Bloomington,
Minnesota. An underground parking garage resides beneath the Tower, and an open
plaza forms the parking garage’s roof on the Tower’s east and west sides.

       Immediately after construction, Ceridian experienced problems with the glass
curtain wall forming the Tower’s exterior. The glass curtain wall leaked during
rainstorms, and the glass forming the curtain wall began to crack and fog. Ceridian
tried to remedy these problems, including caulking the glass and gaskets forming the
curtain wall and injecting foam into the gaps at the glass curtain wall’s base. In 1983,
Ceridian settled with the glass curtain wall’s designer, the glass manufacturer, and the
general contractor for the problems associated with the glass curtain wall.

        In 1985, to raise capital, Ceridian entered into a sale-leaseback transaction
with United Trust Fund, LLC (UTF) for the Tower and the land on which the Tower
sat (collectively, Property). After UTF purchased the Property, a UTF affiliate and
Ceridian entered into the Lease. The Lease provided for a fifteen-year lease term.
The Lease also included repair and maintenance, surrender, and net lease clauses.
Later that year, UTF sold the Property to I. Reiss and Sons (Reiss). Reiss sold the
Tower to Fortune, and Fortune became the lessor under the Lease. As part of the
Reiss-Fortune transaction, Ceridian submitted an estoppel letter stating it was not in
default under the Lease.

      Approximately one month before the Lease expired, Fortune requested that
Ceridian repair the Tower’s glass curtain wall and plaza deck and also replace the

                                          -2-
Tower’s elevator system. Ceridian refused to make the repairs, contending the
Property was in the same condition as it was at the beginning of the Lease, except for
ordinary wear. After the Lease expired, Fortune sued Ceridian, alleging, inter alia,
Ceridian breached the Lease’s repair and maintenance and surrender clauses,
committed common-law and statutory waste of the Tower and, in 1985, fraudulently
misrepresented the Tower’s condition.

       On cross-motions for summary judgment, the district court concluded on the
contract claim that (1) the repair and maintenance and surrender clauses only required
Ceridian to maintain the Property in the same condition as it was in 1985, except for
ordinary wear, and (2) Fortune failed to present evidence that Ceridian breached its
repair and maintenance obligations. On the waste claims, the district court concluded
Fortune failed to establish Ceridian owed a duty to maintain the Property other than
the duty imposed by the Lease, and Ceridian fulfilled its repair and maintenance
obligations under the Lease. Finding material issues of fact remained on Fortune’s
fraudulent misrepresentation claim, the district court set the fraud claim for trial.

       At trial, Fortune attempted to present evidence of the glass curtain wall’s
condition from 1997 to 2000. The district court excluded Fortune’s evidence, finding
the evidence was irrelevant and would confuse the jury about the issues it would
decide. The jury returned a verdict for Ceridian, finding Ceridian did not “falsely
represent past or present material facts to [Fortune].” Fortune appeals, contending the
Lease imposes an obligation upon Ceridian to make the requested repairs, the district
court erred in dismissing its waste claim, and the district court abused its discretion
in excluding evidence of the glass curtain wall’s condition from 1997 to 2000.




                                         -3-
II.    DISCUSSION
       A.     Breach of Contract and Waste Claims2
       “We review the district court’s grant of summary judgment de novo.”
Interstate Cleaning Corp. v. Commercial Underwriters Ins. Co., 
325 F.3d 1024
, 1027
(8th Cir. 2003). “We will affirm a district court’s grant of summary judgment ‘if the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with affidavits . . . ,’ demonstrate that no genuine issue of material fact exists and the
moving party is entitled to judgment as a matter of law.” 
Id. (quoting Fed.
R. Civ. P.
56(c)). “As we exercise our power under diversity jurisdiction, we must interpret the
forum state’s law.” 
Id. Under Minnesota
law, general principles of contract construction apply to
commercial leases. Carlson Real Estate Co. v. Soltan, 
549 N.W.2d 376
, 379 (Minn.
Ct. App. 1996). We construe the Lease to give effect to the parties’ intent as
expressed in the Lease’s language. Pettit Grain & Potato Co. v. N. Pac. Ry. Co., 
35 N.W.2d 127
, 130 (Minn. 1948). The Lease’s language is construed according to its
“commonly accepted meaning.” 
Id. We also
interpret the Lease to give effect to all
provisions and avoid an interpretation that renders a clause meaningless. Oleson v.
Bergwell, 
283 N.W. 770
, 772-73 (Minn. 1939). Extrinsic evidence is used to
interpret the Lease only when a clause in the Lease is ambiguous. Noreen v. Park
Const. Co., 
96 N.W.2d 33
, 36 (Minn. 1959) (citation omitted). A clause is ambiguous
if the clause is susceptible of more than one reasonable interpretation. Groves v.
Dakota Printing Servs., Inc., 
371 N.W.2d 59
, 62 (Minn. Ct. App. 1985).

      Section 2.1(a) of the Lease, the repair and maintenance clause, governs
Ceridian’s repair obligations:


      2
       Because Fortune and Ceridian agree our disposition of the breach of contract
claim resolves the waste claim, we only discuss the district court’s grant of summary
judgment on Fortune’s contract claim.

                                           -4-
      [Ceridian] acknowledges that it has received the [Property] in good
      order and repair. [Ceridian], at its own expense, will maintain all parts
      of the [Property] in good repair and condition, except for ordinary wear
      and tear, and will take all action and will make all structural and
      nonstructual, foreseen and unforeseen and ordinary and extraordinary
      . . . repairs which may be required to keep all parts of the [Property] in
      good repair and condition (including, but not limited to, . . . glass, . . .
      fixtures and equipment, . . . and all paving . . .) in as good a condition as
      they existed at the beginning of the [Lease’s] Term, ordinary wear and
      tear excepted. [Fortune] shall not be required to maintain, repair or
      rebuild all or any part of the [Property].

(Emphasis added). According to its plain, unambiguous language, section 2.1(a) does
not impose a duty on Ceridian to make repairs attributable to ordinary wear. The
clauses “ordinary wear and tear excepted” and “except for ordinary wear and tear”
describe and limit the general repair duty imposed by section 2.1(a).

       The Minnesota Supreme Court in State Mutual Life Assurance Co. v. Oliver
Iron Mining Co., 
195 N.W. 632
, 634-35 (Minn. 1923), concluded similar language
relieved a lessee from making repairs attributable to ordinary wear. The lease in State
Mutual Life contained the following language:

      [T]he lessees do hereby further covenant . . . that they will . . . keep . . .
      said building, both inside and outside, and appurtenances, in good and
      substantial repair . . . and in as good condition as said premises shall be
      on the completion of said building, ordinary wear and tear alone
      excepted. . . . [W]hile the lessor is not to be considered hereby bound to
      make any repairs or improvements at its own expense which the lessees
      are required to make . . . it shall make such repairs as the lessees are not
      hereby required to make, it being understood that the lessees shall keep
      the building in good repair not including, however, ordinary wear and
      tear.




                                           -5-

Id. at 633
(emphasis added). After parts wore out in the building’s elevator, the lessor
sued the lessee for the cost of the repairs. Construing the above language, the
Minnesota Supreme Court concluded “[t]he lessees were not required to make repairs
necessitated by ordinary wear.” 
Id. at 634.
The court reasoned “that the lessor
assumed the obligation to make the repairs and replacements which became necessary
by reason of ordinary wear incidental to the lessees’ proper use of the elevators.” 
Id. at 635.
Similarly, section 2.1(a)’s second sentence does not obligate Ceridian to
make repairs caused by ordinary wear, and, therefore, Fortune assumed this
obligation.

       Section 2.1(a)’s first sentence does not alter our construction, although Fortune
contends this first sentence is controlling. The first sentence acknowledges Ceridian
received the Property in good repair. In the context used, “good order and repair”
must mean the Property’s condition at the beginning of the Lease. As noted above,
the second sentence requires Ceridian to maintain the Property “in as good a
condition as [it] existed at the beginning of the [Lease’s] Term” and in “good repair.”
This clearly evidences an intent by the parties that “good order and repair” refers to
the condition of the Property at the beginning of the Lease, regardless of the
Property’s condition. Otherwise, Ceridian would be required to improve the Property,
if the Property’s condition were not in good repair at the beginning of the Lease. If
Ceridian must improve the Property, then the first part of section 2.1(a)’s second
sentence, requiring Ceridian to maintain the Property in good repair, would create an
internal conflict with the balance of the second sentence of section 2.1(a). However,
any internal conflict in the Lease’s language is avoided if “good order and repair”
means the Property’s condition at the beginning of the Lease.

      Section 9.2 of the Lease, the surrender clause, states:

      Upon the expiration or termination of [the Lease, Ceridian] shall
      surrender the [Property] to [Fortune] in the condition in which the

                                          -6-
      [Property was] originally received from [Fortune], except as repaired,
      rebuilt, restored, altered or added to as permitted or required hereby and
      except for ordinary wear and tear.

(Emphasis added). Section 9.2 requires Ceridian to return the Property to Fortune in
the same condition Ceridian received it in 1985, except for ordinary wear. The clause
“except for ordinary wear and tear” clearly limits Ceridian’s general duty to return the
Property in the same condition as Ceridian received it.

       Finally, requiring Ceridian to make ordinary wear repairs would render the
clauses “except for ordinary wear and tear” and “ordinary wear and tear excepted”
meaningless. As Ceridian argues, Fortune’s interpretation would modify Ceridian’s
repair duty to require surrender of the Property in its original condition regardless of
ordinary wear and tear. Such an interpretation is contrary to the canons of contract
construction, and would compel us to rewrite the Lease, which we will not do.

       The Lease’s silence on who is to complete ordinary wear repairs during the
lease term does not affect our construction. While the Lease does not obligate either
party to undertake such repairs, the Lease does not prohibit a party from undertaking
such repairs. A business lessee would be motivated to make ordinary wear repairs
because the lessee would normally want to keep the premises attractive and safe for
its customers, clients, and employees. Further, the Lease’s silence on who is legally
obligated to make ordinary wear repairs during the lease term necessarily implies the
lessor will be obligated to make such repairs at lease termination, presumably because
the lessor, as the possessory owner, would want to improve its chances of reletting
the Property.

      Fortune argues the Lease imposes an all-encompassing repair duty on Ceridian,
because Fortune and Ceridian intended the Lease to be a triple net lease. Fortune
contends a lessee makes all repairs under a triple net lease. Fortune argues the net


                                          -7-
lease clause evidences this intent. The net lease clause states “[t]his is a net lease”
and limits the parties’ rights and obligations under the Lease, but does not explicitly
limit or expand either parties’ repair duties.3 Assuming, arguendo, the language in
the net lease clause is sufficient to demonstrate the parties intended the Lease to be
a triple net lease and triple net leases generally require the lessee to make all repairs,
the net lease provision does not change Ceridian’s duty of repair. Under Minnesota
law, if a conflict exists between two contract provisions, a contract’s specific term
controls over a general term. Medtronic, Inc. v. Convacare, Inc., 
17 F.3d 252
, 255
(8th Cir. 1994) (citing Burgi v. Eckes, 
354 N.W.2d 514
, 519 (Minn. Ct. App. 1984)).
Here, the general term, the net lease clause, would conflict with the specific term, the
repair and maintenance clause. Due to this conflict, the repair and maintenance
clause controls and defines Ceridian’s repair and maintenance obligations, excepting
ordinary wear and tear.



      3
       Specifically, the net lease clause provides:

      This is a net lease and, any present or future law to the contrary
      notwithstanding, shall not terminate except as otherwise expressly
      provided herein, nor shall [Ceridian] be entitled to any abatement or
      reduction (except as otherwise expressly provided herein), set-off,
      counterclaim, defense or deduction with respect to any Basic Rent,
      additional rent or other sums payable hereunder, nor shall the
      obligations of [Ceridian] hereunder be affected (except as otherwise
      expressly provided herein), by reason of: any damage to or destruction
      of the [Property]; any taking of the [Property] or any part thereof by
      condemnation or otherwise; any prohibition, limitation, restriction or
      prevention of [Ceridian’s] use, occupancy or enjoyment of the
      [Property], or any interference with such use, occupancy or enjoyment
      by any person; any eviction by paramount title or otherwise; any default
      by [Fortune] hereunder or under any other agreement; the impossibility
      or illegality of performance by [Fortune, Ceridian] or both; any action
      of any governmental authority; or any other cause whether similar or
      dissimilar to the foregoing.

                                           -8-
       Because we conclude the district court correctly interpreted the repair duties
imposed on Ceridian under the Lease, we affirm the district court’s grant of summary
judgment to Ceridian on Fortune’s contract and waste claims. As Fortune does not
challenge the district court’s conclusion that Fortune failed to present any evidence
that Ceridian breached its repair and maintenance obligations under the Lease as
interpreted by the district court, we do not review this aspect of the district court’s
summary judgment decision. See Am. River Transp. Co. v. Paragon Marine Servs.,
Inc., 
329 F.3d 946
, 948 (8th Cir. 2003) (noting arguments not raised in first appellate
brief are waived).

       B.     Exclusion of Evidence
       At the jury trial on the fraud claim, Fortune offered no evidence of any ordinary
wear and tear on the Property or what the Property’s condition was in 1985. But
Fortune attempted to introduce evidence of the glass curtain wall’s condition from
1997 to 2000 (specifically, a 1998 report) to demonstrate Ceridian, in 1985, falsely
represented the glass curtain wall’s condition. The district court determined the
evidence was too remote and not relevant to the condition in 1985, and also excluded
this evidence as confusing and potentially misleading to the jury under Federal Rule
of Evidence 403 (Rule 403). “The district court has broad discretion in deciding
whether to admit evidence at trial. We will reverse the district court only for a clear
and prejudicial abuse of that discretion.” Jones v. TEK Indus., Inc., 
319 F.3d 355
,
360 (8th Cir. 2003).

       The evidence Fortune sought to admit has little, if any, probative value.
Fortune contended Ceridian fraudulently misrepresented the glass curtain wall’s
condition when it entered into the sale-leaseback transaction in 1985. The evidence
Fortune attempted to admit concerned the glass curtain wall’s condition from 1997
to 2000. The glass curtain wall’s condition twelve to fifteen years after the sale-
leaseback transaction has virtually no probative value without comparative evidence
of the Property’s condition in 1985, and the effects of ordinary wear and tear on the

                                          -9-
glass curtain wall’s condition over the years. This 1997-2000 evidence, standing
alone, is obviously too remote.

       Fortune maintains the evidence had some relevance to contradict Ceridian’s
interrogatory answers. In one answer to an interrogatory, Ceridian declared the glass
curtain wall’s condition was the same or better in 2000 than in 1985. However, in
another interrogatory answer, Ceridian stated the glass curtain wall’s condition was
better in 2000 than in 1985, except for ordinary wear and tear. The admissions from
any conflict between the two interrogatories do not substantially increase the
probative value of the evidence.4

       The potential of confusing the critical issues before the jury substantially
outweighs any probative value of Fortune’s evidence. Under Rule 403, a district
court may exclude evidence when “its probative value is substantially outweighed by
the danger of unfair prejudice, confusion of the issues, or misleading the jury.” Fed.
R. Evid. 403. The relevant inquiry at trial was the glass curtain wall’s condition in
1985, not 1997, and not whether Ceridian properly maintained the Property under the
Lease. Fortune’s evidence would have focused the jury’s attention on the glass
curtain wall’s condition in 1997 or Ceridian’s efforts to maintain the Property,
potentially imposing liability on Ceridian (1) for the condition of the glass curtain
wall in 1997 or at the end of the Lease’s term; or (2) for maintenance problems. We
have already rejected this theory of recovery. The district court did not abuse its
broad discretion in excluding this evidence.



      4
       To the extent Fortune argues the doctrine of judicial estoppel renders the
evidence admissible, we disagree. “The doctrine of judicial estoppel prohibits a party
from taking inconsistent positions in the same or related litigation.” Hossaini v. W.
Mo. Med. Ctr., 
140 F.3d 1140
, 1142 (8th Cir. 1998). Because Fortune has failed to
demonstrate admitting the evidence on the glass curtain wall’s condition from 1997
to 2000 would further the doctrine’s purpose, we reject Fortune’s contention.

                                        -10-
III.  CONCLUSION
      For the foregoing reasons, we affirm the district court’s grant of partial
summary judgment to Ceridian and the district court’s exclusion at trial of Fortune’s
evidence on the fraud claim.
                      ______________________________




                                        -11-

Source:  CourtListener

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