Bachorz v. Miller-Forslund , 703 F.3d 27 ( 2012 )

United States Court of Appeals
For the First Circuit
No. 12-1187
GARY J. BACHORZ; CARMELO A. SCUDERI,
Plaintiffs, Appellees,
v.
SHAUNICE MILLER-FORSLUND,
Executrix of the Estate of Nairn L. Miller,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Howard, Ripple,* and Selya,
Circuit Judges.
James Kossuth, with whom David H. Rich was on brief, for
appellant.
Mark J. Albano for appellees.
December 26, 2012
*
Of the Seventh Circuit, sitting by designation.
RIPPLE, Circuit Judge. In February 1996,
Mr. Gary Bachorz and Mr. Carmelo Scuderi (the “plaintiffs”) entered
into a fifteen-year lease, which included a purchase option, with
Mr. Nairn Miller. The plaintiffs instituted this action against
Miller’s successor in interest,1 Ms. Shauna Miller-Forslund, when
she refused to allow the plaintiffs to exercise the purchase option
on the ground that they were in default on their obligations under
the lease. The district court granted summary judgment in favor of
the plaintiffs and ordered specific performance of the purchase
option.2 It determined that Miller had waived a provision which
prohibited the plaintiffs from subleasing without prior written
permission and that all alleged defaults were “inconsequential and
immaterial.” Bachorz v. Miller-Forslund, 812 F. Supp. 2d 83, 94
(D. Mass. 2011).
Ms. Miller-Forslund appeals. She contends that there was
no waiver, that the plaintiffs were in material breach and that
their attempt to exercise the option was therefore invalid. We
conclude that the district court was correct and affirm its
judgment.3
1
Mr. Miller died in January 2007.
2
The district court’s jurisdiction was predicated on 28
U.S.C. § 1332. The plaintiffs are citizens of Massachusetts and
Mr. Miller was a citizen of either Idaho or Florida when he died.
3
Our jurisdiction is predicated on 28 U.S.C. § 1291.
2
I
BACKGROUND
A. Facts
The plaintiffs are the owners and operators of Berkshire
Auto & Truck, Inc. (“Berkshire Auto”), an auto-repair business,
which they started in 1985. In 1995 or early 1996, the plaintiffs
approached Miller about the possibility of purchasing his property
located at 850 Berkshire Avenue (the “premises”) for Berkshire
Auto’s new location. Miller was amenable to the sale, but wanted
to avoid paying capital gains tax on the property. The parties
therefore settled on a fifteen-year lease with a purchase option.
The lease was executed on February 12, 1996, and began on March 1,
1996. The purchase option, contained in Article XVII, subsection
17.01, is as follows:
The Tenants shall have an option to
purchase the [premises] for the sum of One
Hundred Seventy-Five Thousand ($175,000.00)
Dollars to be exercised during the term of
this lease by instrument in writing directed
to the Landlord at its designated address
provided that the Tenants shall not then be in
default in the payment of rent or any of the
other terms and conditions hereof.[4]
Article IV, subsection 4.03 allowed the plaintiffs to make
alterations or improvements with Miller’s written consent. Under
Article VI, subsection 6.01, prior written consent also was
required for any sublease or assignment. However, any sublease or
4
R.29-1 at 7.
3
assignment would not alter the overall rental obligation of the
plaintiffs under the lease.5 Article VII, subsection 7.02 required
the plaintiffs to “comply with all of the requirements of all
county, municipal, state, federal and other applicable governmental
authorities” and “faithfully observe in the use of the premises all
municipal and county ordinances and state and federal statutes.”6
Article XIV, subsection 14.01 provided that waiver of any breach,
covenant or condition, or acceptance of rent subsequent to a
breach, was not a waiver of the lease term and that any waiver had
to be in writing. Subsection 14.03 required any amendment to the
agreement to be in writing.
Miller’s duties under the agreement included a provision
in Article IV, subsection 4.04 that he “warrant[] the good
condition and repair of the roof of the premises for a period of
ten (10) years . . . and agree[] to be responsible for any
necessary repairs thereto.”7 The plaintiffs specifically requested
this provision because an inspection had revealed that “the roof
5
Article II, subsection 2.01 provided for reduced payments
during the first six months, creating an “unpaid rent” deficit.
The lease further provided that this “unpaid rent” would be
satisfied by increased payments for the following three years. Any
rent received from sublessees during those three years was to be
applied to accelerate the payment of this “unpaid rent.” Id. at 1.
6
Id. at 3.
7
Id. at 2.
4
had several issues” and “needed work.”8 Mr. Bachorz testified that
he may not have entered into the lease had Miller not agreed to
warrant the good condition of the roof. Mr. Bachorz believed that,
in ten years, Berkshire Auto would be financially able to take over
responsibilities for the roof.
The plaintiffs leased the premises in their own name and
immediately began subleasing it to Berkshire Auto, although the
record does not indicate whether this arrangement included a formal
written sublease. The lease did not provide explicitly that the
plaintiffs would sublease the premises to Berkshire Auto, and the
plaintiffs did not obtain written permission for that arrangement.
Miller himself also continued to maintain an office on the premises
until 2002; however, the lease contained no provision contemplating
that Miller would continue to occupy part of the premises.9
Mr. Bachorz testified that, after signing the lease,
Miller encouraged the plaintiffs to find subtenants to assist in
paying rent and thus utilize the entire building. At some point
between 1996 and early 2002, the plaintiffs allowed an individual
to operate a discount dog food business on the premises in exchange
8
R.32-3 at 5, 23.
9
Ms. Miller-Forslund suggests that the lease provided for
Miller’s continued presence on the property. Appellant’s Br.
22-23. The most colorable mention of a sublease to Miller in the
lease is a provision that reads: “Each such monthly payment shall
be payable on or before the first day of each month, in advance, at
the office of the Landlord or at such other place designated by
Landlord.” R.29-1 at 1.
5
for a portion of his sales revenue. In February 2002, the
plaintiffs allowed another business, Berkshire RV Rentals, to
operate on the premises without paying rent. Mr. Bachorz testified
that, although he did not obtain express oral or written consent to
sublet to the dog food business, Miller knew about the arrangement
because he walked past displays of dog food every day when he came
to his office on the premises. Mr. Bachorz testified that, when he
approached Miller about subletting to Berkshire RV Rentals in early
2002, Miller said it was a “good idea” and agreed to vacate his
office to make room for the new subtenant.10 Berkshire RV Rentals
occupied space on the premises for three or four months. From
February 2006 until at least the date of the district court’s
ruling in September 2011, the plaintiffs sublet two offices on the
premises to Tri-Lift, a forklift company, for $500 per month. As
with the other subtenants, there was no written lease, just a
month-to-month oral agreement. The parties agree that the
plaintiffs did not notify or obtain permission from Miller or
Ms. Miller-Forslund prior to subleasing to Tri-Lift.
The roof of the premises leaked at least once every year
from the commencement of the lease until 2002. Mr. Bachorz
testified that the leaky roof caused property damage including a
shorted-out radio and alarm system, and the plaintiffs had to hang
plastic from the ceiling to channel the incoming water. In May
10
R.32-3 at 8-9.
6
2002, the plaintiffs’ attorney notified Miller in writing that the
roof was leaking yet again, had caused property damage and was
sagging. A professional estimated that it would cost over $15,000
to repair the roof properly. The letter noted that Miller’s prior
attempts to repair the roof had failed and demanded that he comply
with the lease term requiring him to repair it properly. Miller
responded by letter saying that replacing the roof was not an
option. He stated that the plaintiffs owed him $90 in late fees
and, in a post-script, noted that the plaintiffs were in default
for subletting a portion of the premises without prior written
consent. Mr. Bachorz testified that, when he spoke with Miller
after the letter exchange, Miller said that he would not pay for a
new roof and told the plaintiffs, “‘You guys should pay for the
roof because you’re going to own the building.’”11 In response to
interrogatories, the plaintiffs stated that Miller agreed to waive
any default as to subtenants. “He said . . . words to the effect
that ‘The place will be yours soon. I don’t want to pay anything
else for maintenance. If you pay for the roof, I will not raise
any issue about present [or] future subtenants.’”12 In their
depositions, both plaintiffs also testified that Miller told them
that, if they paid for the roof, he would not worry about the lack
of prior written consent for the subtenants. Mr. Bachorz
11
Id. at 24.
12
R.32-5 at 2.
7
specifically testified that this oral agreement included past and
future subtenants. The plaintiffs replaced the roof at their own
expense in 2004; Mr. Bachorz testified that the delay was
“probably” because they could not afford the repair in 2002.13 In
addition to replacing the roof, the plaintiffs made other changes
to the property over the course of the lease; Mr. Bachorz testified
that Miller verbally approved their efforts and told them that they
were “doing a good job.”14
Mr. Miller died on January 17, 2007, and his daughter,
Shaunice Miller-Forslund, became executrix of his estate. On April
29, 2009, Ms. Miller-Forslund’s attorney sent a letter informing
the plaintiffs that they were in default for failing to pay late
fees, subleasing the premises without prior written consent and
failing to resubmit rental payments when two checks designated as
“mortgage” were refused. The letter stated that these defaults
precluded the plaintiffs from exercising the purchase option. On
May 28, 2009, the plaintiffs sent Ms. Miller-Forslund a written
notice of their intent to exercise the option. When
Ms. Miller-Forslund refused to sell, the plaintiffs sued, demanding
specific performance or damages of $550,000 plus costs and fees.
13
R.32-3 at 13.
14
Id. at 26.
8
B. District Court Proceedings
During proceedings in the district court,
Ms. Miller-Forslund alleged that the plaintiffs were in violation
of various lease terms, including making improvements without prior
written consent, subleasing without written permission and
violating municipal ordinances. The district court nevertheless
granted the plaintiffs’ request for specific performance,
determining that the May 2009 letter was a valid exercise of the
option because any breach of the sublease provision had been waived
by Miller during the roof replacement negotiations, and in any
event, all defaults cited by Ms. Miller-Forslund were
“inconsequential and immaterial.” Bachorz, 812 F. Supp. 2d at 94.
II
DISCUSSION
A.
We first address whether Miller waived the requirement
that the plaintiffs obtain written permission before subleasing any
portion of the premises. Ms. Miller-Forslund maintains that there
was no waiver because the agreement required all waivers to be in
writing, and the record does not show conclusively that Miller
waived the requirement through his words or actions.
We begin our evaluation of these arguments with an
examination of the relevant general principles related to waiver
9
and modification.15 Whether a party has waived a right under a
contract is usually a question of fact, but the issue may be
resolved on summary judgment when “the evidence is clear,
unequivocal and undisputed.” Metro. Transit Auth. v. Ry. Exp.
Agency, Inc., 84 N.E.2d 26, 28 (Mass. 1949); see also Fed. R. Civ.
P. 56(a) (“The court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.”).
Waiver of a contractual right “may occur by an express
and affirmative act, or may be inferred by a party’s conduct, where
the conduct is ‘consistent with and indicative of an intent to
relinquish voluntarily a particular right [such] that no other
reasonable explanation of [the] conduct is possible.’” KACT, Inc.
v. Rubin, 819 N.E.2d 610, 616 (Mass. App. Ct. 2004) (alterations in
original) (quoting Attorney Gen. v. Indus. Nat’l Bank of R.I., 404
N.E.2d 1215, 1218 n.4 (Mass. 1980)); see also Dynamic Mach. Works,
Inc. v. Mach. & Elec. Consultants, Inc., 831 N.E.2d 875, 880 (Mass.
2005) (noting that waiver may be express or “inferred from a
party’s conduct and the surrounding circumstances” (internal
quotation marks omitted)). If waiver is to be inferred from a
party’s conduct, the conduct at issue must be “clear, decisive and
unequivocal.” Glynn v. City of Gloucester, 401 N.E.2d 886, 892
15
The parties are in agreement that the law of Massachusetts
controls the merits of their dispute.
10
(Mass. App. Ct. 1980); see also Paterson-Leitch Co. v. Mass. Mun.
Wholesale Elec. Co., 840 F.2d 985, 992 (1st Cir. 1988). The waiver
must be clear, particularly when it involves a condition for
exercising an option contained in a lease agreement. Massachusetts
law takes a strict view of options. “[A] waiver of the conditions
with respect to the tenancy will not be a waiver of the conditions
for the option unless the lessor makes a separate waiver of those
conditions.” Pear v. Davenport, 853 N.E.2d 206, 209 (Mass. App.
Ct. 2006). Thus, a landlord who by his conduct waives a provision
requiring the timely payment of rent, does not waive necessarily
that requirement for purposes of a provision requiring compliance
with lease terms as a precondition to the exercise of an option.
See id. at 210.
As to a writing requirement, a contractual provision
requiring modifications or waivers to be in writing does not
prevent the parties from making such changes orally or through
their conduct. Indeed, it is well settled Massachusetts law that
parties, through their words or conduct, may modify a contract
despite a provision requiring modifications to be in writing. See
Cambridgeport Sav. Bank v. Boersner, 597 N.E.2d 1017, 1022 (Mass.
1992) (“[A] provision that an agreement may not be amended orally
but only by a written instrument does not necessarily bar oral
modification of the contract. Mutual agreement on modification of
the requirement of a writing may . . . be inferred from the conduct
11
of the parties and from the attendant circumstances of the instant
case.” (second alteration in original) (internal quotation marks
omitted)); First Pa. Mortg. Trust v. Dorchester Sav. Bank, 481
N.E.2d 1132, 1138-39 (Mass. 1985) (holding that the “clear terms”
of the original agreement requiring written consent for
modification did not nullify a subsequent oral modification).
Parties may waive orally provisions requiring modifications to be
in writing. See, e.g., Parks v. Johnson, 703 N.E.2d 728, 728-29
(Mass. App. Ct. 1998) (holding that a party to a construction
contract impliedly waived, through words and conduct, a provision
requiring changes to be in writing). Parties also may waive orally
a provision requiring all waivers to be in writing. See Clifford
Shoe Co. v. United Shoe Mach. Corp., 8 N.E.2d 161, 167 (Mass. 1937)
(noting that a “clause in the lease requiring waiver of any
provisions to be in writing . . . may be modified orally”).16
Applying these principles to the present case, we agree
that the record supports the district court’s determination that
clear, decisive conduct and statements establish that Miller
effectively waived the provision requiring the plaintiffs to obtain
16
See also 13 Samuel Williston & Richard A. Lord, A Treatise
on the Law of Contracts § 39:36 (4th ed. 2000) (“[T]he nonwaiver
clause itself, like any other term of the contract, is subject to
waiver by agreement or conduct during performance.”); 8 Catherine
M.A. McCauliff, Corbin on Contracts § 40.13 (Joseph M. Perillo,
ed., revised ed. 1999) (“[A]n express provision in a written
contract that no rescission or variation is valid unless it too is
in writing will not invalidate a subsequent oral agreement to the
contrary.”).
12
written consent before subleasing the premises. It is undisputed
that, in May 2002, the plaintiffs retained an attorney to send
Miller written notice that he was in breach of his agreement to
maintain the roof in good condition and be responsible for any
repairs. Miller responded by having his attorney send the
plaintiffs written notice disputing their allegations and alleging
that the plaintiffs were in breach of lease terms including the
requirement that they obtain Miller’s written consent before
subleasing the premises. The record indicates that the parties met
informally to discuss their relative positions, and Miller told the
plaintiffs that, if they would pay to replace the roof (thus
releasing Miller from his contractual obligation under Article IV,
subsection 4.04), he would not seek to enforce the provision
requiring prior written permission for subtenants, whether past or
future (thus releasing the plaintiffs from their obligation under
Article VI, subsection 6.01). During this discussion, Miller
explained that he did not want to invest in a new roof because the
plaintiffs would be the eventual owners of the property. In
response to interrogatories, the plaintiffs indicated that Miller
said “words to the effect that ‘The place will be yours soon. I
don’t want to pay anything else for maintenance. If you pay for
the roof, I will not raise any issue about present [or] future
13
subtenants.’”17 After this conversation there were no further
disputes about subtenants or the leaky roof, and the plaintiffs
replaced the roof at their own expense in 2004 at a cost of
$22,400.
The parties’ words and conduct clearly evince a mutual
agreement to waive permanently the provisions related to roof
maintenance and subtenants. The only evidence in the record shows
that Miller said that he would waive the provision for future
subtenants if the plaintiffs accepted responsibility for the roof.
The plaintiffs’ decision to replace the roof at their own
considerable expense “is consistent with and indicative of,” KACT,
819 N.E.2d at 616, their acceptance of Miller’s proposal. That the
waiver applied to the purchase option is also clear from the
context of the conversation--Miller wanted to be excused from his
responsibility to maintain the roof because he expected the
plaintiffs to exercise the option. This “clear, decisive and
unequivocal” waiver released the plaintiffs from any obligation to
obtain Miller’s prior written permission and failure to obtain
permission was not a breach.18
17
R.32-5 at 2.
18
Our decision in Sunoco, Inc. v. Makol, 372 F.3d 31 (1st
Cir. 2004), is not contrary. Sunoco involved a tenant who breached
an assignment clause. According to the record, absent that breach,
the clause may have resulted in the lessor receiving a significant
portion of the rent paid by the subtenant. Id. at 38-39. Unlike
the present case, there was no evidence that the landlord waived
(continued...)
14
Ms. Miller-Forslund does not offer any contrary evidence
but instead argues that we should disregard the plaintiffs’
testimony because it conflicts with the complaint’s allegation that
the plaintiffs decided to replace the roof due to Miller’s breach
and with the complaint’s request for reimbursement for the cost of
the roof.19 The testimony and complaint do not conflict. The
evidence shows that the alleged breach of Miller’s obligation to
maintain the roof in good condition prompted the plaintiffs to
confront Miller, which in turn led to the oral agreement and the
plaintiffs’ decision to replace the roof at their own considerable
expense. It is not surprising that the plaintiffs did not include
all these details in the complaint because a “short and plain
statement” is all that the rules require. Fed. R. Civ. P. 8(a).
In addition, the request for reimbursement for replacing the roof
is best read as an alternative theory for relief in the event that
the court denied specific performance, and is entirely permissible
under Rule 8(d).20 See Rodriguez-Suris v. Montesinos, 123 F.3d 10,
20 (1st Cir. 1997). Because the uncontradicted evidence shows that
18
(...continued)
the provision, id. at 36, and we were not asked to determine
whether the breach was material or insignificant.
19
Appellant’s Br. 18.
20
We note that the district court’s purchase price
calculation did not credit the plaintiffs for having paid to
replace the roof. See Bachorz v. Miller-Forslund, 840 F. Supp. 2d
419 (D. Mass. 2012); Bachorz v. Miller-Forslund, No.
3:09-cv-30132-MAP (D. Mass. Dec. 6, 2011).
15
Miller agreed to waive forever the provision requiring the
plaintiffs to obtain written permission prior to subleasing the
premises, the plaintiffs’ failure to obtain permission was not a
breach of the lease agreement and did not prevent the valid
exercise of the option to purchase.
B.
Ms. Miller-Forslund additionally argues that the
plaintiffs breached Article VII, subsection 7.02, which requires
them to comply with state and municipal laws.21 She contends that
the plaintiffs breached the provision by violating municipal
ordinances in the following ways: performing work without a
permit, failing to plant shrubs as a buffer between pavement and a
tree belt, failing to pay excise tax and applying for a permit as
property owners even though they were only tenants.22 She contends
that compliance with these municipal ordinances “‘go[es] to the
21
Ms. Miller-Forslund also alludes to back rent or
late-payment fees. The district court did not consider the issue
of back rent or late payments because Ms. Miller-Forslund did not
address these alleged defaults in her summary judgment brief.
Bachorz, 812 F. Supp. 2d at 87 n.4. Examination of that document
supports the district court’s decision.
22
Appellant’s Br. 9, 33. Ms. Miller-Forslund argued to the
district court that the plaintiffs were in breach for making
improvements to the property without written permission; her brief
on appeal notes this fact, but does not argue that it precludes
exercise of the option.
16
heart of the parties’ agreement.’”23
The district court noted that Ms. Miller-Forslund had
failed to present evidence of how the alleged violations harmed her
or Miller and held that she was attempting to seize on trivial
violations in order to avoid her obligation to sell the property.24
We agree with the district court.
Massachusetts takes a strict view of options. Trinity
Realty I, LLC v. Chazumba, LLC, 931 N.E.2d 510, 512 (Mass. App. Ct.
2010). However, it also recognizes that a party’s substantial
compliance may be sufficient, as a matter of law, to maintain its
right to exercise an option. Id. Thus, “minor,” “immaterial” or
“inconsequential” breaches, which do not prejudice the lessor, will
not prevent a lessee from exercising an option. Id. Otherwise, an
“option would be virtually meaningless, as [the lessor] could seize
on any number of trivial, technical violations of the lease in
order to avoid it.” Id. at 513.
Here, there is no evidence suggesting that the alleged
violations of municipal ordinances prejudiced Ms. Miller-Forslund
or her predecessor, significantly affected her rights under the
contract or otherwise went “to the heart of the parties’
agreement.” Id. at 513 n.4. The district court noted that
23
Id. at 33 (quoting Trinity Realty I, LLC v. Chazumba, LLC,
931 N.E.2d 510, 513 n.4 (Mass. App. Ct. 2010)).
24
See Bachorz, 812 F. Supp. 2d at 94.
17
Ms. Miller-Forslund did not say how the alleged violations caused
any harm to her or her predecessor in interest and she does not
argue otherwise on appeal.25 Without any evidence suggesting that
the municipal violations were “significant or prejudicial” or went
“to the heart” of the lease agreement, id. at 512, 513 n.4, summary
judgment in favor of the plaintiffs was entirely proper.
Conclusion
For the foregoing reasons, we affirm the district court’s
order of specific performance of the purchase option.
AFFIRMED
25
When confronted during oral argument, counsel acknowledged
that the municipal ordinance violations were “perhaps” trivial
defaults.
18