Equitable Life Assurance Society of the United States v. Softex Products, Inc.

Not for publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 02-2409
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES,
Plaintiff, Appellant,
v.
SOFTEX PRODUCTS, INC., P.R.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Lynch, Circuit Judge,
Arnold,* Senior Circuit Judge,
and Howard, Circuit Judge.
Marshal D. Morgan, with whom Francisco A. Besosa and Adsuar
Muniz Goyco & Besosa, P.S.C. were on brief, for appellant.
John R. O'Connor for appellee.
October 27, 2003
* Of the Eight Circuit, sitting by designation.
Per Curiam. Plaintiff Equitable Life Assurance Society
(“Equitable”) challenges, inter alia, the district court’s entry of
summary judgment in favor of defendant Softex Products, Inc., P.R.
(“Softex”) in a dispute over the allocation of property taxes in a
lease agreement. After due consideration of the record, we
reverse.
I. Factual and Procedural Background
Beginning in November 1995, Softex leased a portion of a
building in an industrial park owned by Industrial Warehouses, Inc.
(“Industrial”). In the lease, Softex agreed to pay monthly rent,
as well as its pro rata share (based on the square footage Softex
occupied) of property taxes assessed to the parcel owned by
Industrial. The lease term was five years.
Softex manufactured paper products and, by virtue of its
business line, was potentially eligible for a ninety-percent
reduction in taxes under Puerto Rico law. Softex sought and
obtained a tax exemption from the Puerto Rico Office of Industrial
Tax Exemption ("OITE") in 1996.1 Industrial, as owner of the
1
The parties dispute the legal effect of this exemption.
Equitable, the successor to Industrial’s interest in the lease,
argues that the exemption applied only to real and personal
property that Softex owned, and that as to the leased property,
Softex could only take advantage of the exemption if the owner also
obtained a tax exemption. Neither Industrial nor Equitable ever
obtained a tax exemption from the Commonwealth for the property
leased by Softex. At oral argument, counsel for Equitable
represented that as a result, Equitable is liable to the
Commonwealth for the full (i.e., unabated) amount of property taxes
during Softex’s tenancy, although it appears that those taxes have
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property leased to Softex, unsuccessfully sought a tax exemption
for the property in 1998; its application was denied with prejudice
because Industrial had outstanding debts to the government.
In June 1999, Industrial transferred title to the
property (and assigned all related leases) to Equitable, a New York
corporation, as payment on an outstanding debt. At that time,
Softex ceased contributing towards the taxes on the leased
property. When Softex’s lease expired at the end of 2000, the
parties became embroiled in a dispute over the amounts due from
Softex as a holdover tenant. Equitable initiated an eviction
action against Softex in Puerto Rico superior court in March 2001,
and soon thereafter brought the underlying diversity action
seeking overdue rent, taxes, insurance premiums, and operating
expenses. Within weeks, the parties settled most of their
differences by a stipulation in the eviction action. The dispute
over property taxes remained, however, and the federal action went
forward on this basis.
not yet been paid because of administrative delays. It likewise
appears that Softex paid some or all of its portion of the property
tax assessments during the period that Industrial owned the
property, without reduction on the basis of any purported
exemption.
By contrast, Softex contends that the exemption entitled it to
reimbursement for ninety percent of its taxes, regardless whether
the taxes assessed on the property occupied by Softex were actually
reduced by the Commonwealth. Because our conclusion turns on the
language of the lease, we need not involve ourselves in this
dispute.
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In May 2001, Softex filed counterclaims against
Equitable, seeking relocation costs, reimbursement for property
taxes previously paid, and $50,000 in unspecified damages.
Equitable moved to dismiss the counterclaims for failure to state
a claim upon which relief may be granted. See Fed. R. Civ. P.
12(b)(6). Softex opposed, and, after a somewhat irregular
progression of filings, the district court was presented with what
amounted to cross-motions for summary judgment on the
counterclaims.2 Equitable also moved for summary judgment on its
own claims, alleging that the lease unambiguously required Softex
to pay its full share of property taxes.
In a September 16, 2002 order, the district court denied
Equitable’s motion for summary judgment on its claims against
Softex, concluding that the lease agreement was ambiguous as to who
was responsible for the property taxes at issue. Turning to the
legislative intent behind the tax exemption laws for guidance in
interpreting the contract, the court found that Softex was entitled
to a tax exemption, although the OITE had not in fact granted such
2
Softex responded to the motion to dismiss in a filing titled
“Opposition to Motion to Dismiss And/Or Motion for Summary Judgment
Pursuant to Rule 56, Federal Rules of Civil Procedure.” It asked
the district court to consider an affidavit of a Softex officer who
negotiated the lease. Softex did not, however, attach a statement
of uncontested material facts as required by Local Rule 311.12.
Equitable responded with a request that its motion to dismiss be
treated as a cross-motion for summary judgment. Equitable
submitted a statement of uncontested material facts in compliance
with the local rules.
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an exemption to Industrial or Equitable as owners of the property.
The district court granted Equitable’s motion to dismiss
the counterclaims in part, concluding that Softex failed to state
any factual predicate for its claim of $50,000 in unspecified
damages.3 The district court did not expressly award Softex
relocation costs and reimbursement for prior property taxes paid,
but appeared to do so implicitly by granting Softex’s motion for
summary judgment without explanation. Equitable appealed.
II. Analysis
Summary judgment is appropriate when there is no genuine
issue as to any material fact and the moving party is entitled to
judgment as a matter of law. Rochester Ford Sales, Inc. v. Ford
Motor Co., 287 F.3d 32, 38 (1st Cir. 2002). The district court’s
summary judgment ruling is subject to plenary review. See id.Typically, we construe the record in the light most favorable to
the nonmovant, resolving all reasonable inferences in that party's
favor. See id. But here, the district court accepted the
uncontested material facts submitted by Equitable because Softex
failed to comply with Local Rule 311.12. United Parcel Serv., Inc.
v. Flores-Galarza, 318 F.3d 323, 330 & n.10 (1st Cir. 2003). We
uphold that ruling, which was well within the district court’s
discretion, see id., and consider the facts accordingly.
3
Softex has not appealed this ruling.
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On appeal, Equitable contends that the district court
found contract ambiguity where there was none, and therefore acted
improperly in interjecting the legislative intent underlying the
tax laws into the parties' lease agreement. Equitable further
argues that Softex is not entitled to the damages sought in the
counterclaims. We find Equitable’s arguments persuasive.
A. Property Tax Liability
Equitable contends that the lease unambiguously assigned
responsibility for taxes on the subject property to Softex.
Section 4 of the lease agreement addressed the issue of taxes:
(a) In addition to the minimum rental to be
paid by LESSEE . . . LESSEE agrees to pay to
LESSOR in the manner and at the times
hereinafter provided an amount equal to
26.716%4 of all real estate taxes and
assessments levied or imposed upon any and all
of the parcel of land before described and on
the building erected thereupon, and
improvements thereto, except that the LESSEE
shall be under no obligation to pay any
income, corporation, inheritance, devolution,
gift or estate tax or any other tax which may
be charged or assessed against the LESSOR, or
any tax upon the sale, transfer, assignment of
the title or estate of the LESSOR which at any
time may be assessed against or become a lien
upon the DEMISED PREMISES, this leasehold or
the rent accruing therefrom. The LESSOR may
have received or may receive in the future,
tax exemptions on portion of the land and
building for which the LESSEE may not be
4
The figure 26.716% is derived from the percentage of the
industrial park property that Softex occupied. During its tenancy,
Softex leased additional space, bringing its share of the property
to 43.076%.
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entitled, in which case the LESSEE will be
responsible for aforementioned percentage of
real estate taxes and assessments based on the
full assessed value without regard to any tax
credits or exemptions.
(emphasis added).
The first part of § 4(a) states that Softex, as lessee,
is responsible for its share of real estate taxes. This
responsibility is underscored in the next sentence, which states
that the lessee must pay its percentage of the full assessed value
of the property, “without regard to any tax credits or exemptions”
that the lessor obtains or may obtain in the future.
The district court noted that, in this case, it was the
lessee, not the lessor, who held an exemption, and concluded that
4(a) “does not speak to [this] inverse situation.” Finding this an
ambiguity not addressed by the lease, the district court looked to
the tax exemption laws for guidance. The district court concluded
that Softex should have had the benefit of a reduction in property
taxes, and therefore denied Equitable’s claim for past due property
taxes and granted Softex’s claim for reimbursement by Equitable.
We take a different view of the lease, which required
Softex to pay its share of “all real estate taxes and assessments
levied or imposed” on the property owned by Equitable. This
unqualified language governs, because nothing in the lease suggests
that the parties intended to cap Softex's tax obligation at the
tax-exempt rate. If Softex wanted its tax obligation to be pegged
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to whether it received a discounted tax rate, it should have
negotiated such a condition in the lease. See Martin v. Vector
Co., Inc., 498 F.2d 16, 24 (1st Cir. 1974). Because the lease is
clear, we look no further than its four corners. 31 P.R. Laws Ann.
§ 3471 (“If the terms of a contract are clear and leave no doubt as
to the intentions of the contracting parties, the literal sense of
its stipulations shall be observed. If the words should appear
contrary to the evident intention of the contracting parties, the
intention shall prevail.”); Executive Leasing Corp. v. Banco
Popular de P.R., 48 F.3d 66, 69 (1st Cir. 1995) (“[T]o consider the
extrinsic evidence at all, the court must first find the relevant
terms of the agreement unclear.").
In addition to the rationale provided by the district
court, Softex points to the absence of an integration clause in the
lease, inviting us to consider extrinsic evidence purportedly
showing that the parties intended that Softex would not be
responsible for its full share of property taxes. See Executive
Leasing, 48 F.3d at 69. Even if we assume arguendo that the
absence of an integration clause allows us to consider such
evidence, the outcome would be no different. Having failed to
contest Equitable’s version of the facts or to present a statement
of uncontested material facts in support of its own theory of the
case, Softex is bound by the facts as presented by Equitable, which
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do not include the parol evidence on which Softex hopes to rely.5
We conclude that, by virtue of the clear and unambiguous
lease terms, Softex bore liability for the specified percentages of
the property taxes ultimately imposed on the subject property, as
well as the risk that the amounts assessed by the Commonwealth
would not be reduced on the basis of a tax exemption. We therefore
reverse the district court’s entry of summary judgment in favor of
Softex and remand with instructions that judgment be entered in
favor of Equitable on this issue.
B. Relocation Expenses
Equitable argues that the district court erroneously, and
perhaps inadvertently, awarded Softex relocation costs and
reimbursement for prior property taxes paid. Although the record
is somewhat ambiguous, it appears that after the district court
dismissed Softex’s claim for $50,000 in unspecified damages on
Equitable’s motion, it granted summary judgment in favor of Softex
5
Softex also contends that the language of the lease itself
demonstrates that the parties intended that Softex would have the
benefit of its tax exemption. As support, Softex points to the
portion of § 4(a) that states that Softex “shall be under no
obligation to pay any income, corporation, inheritance, devolution,
gift or estate tax or any other tax which may be charged or
assessed against the LESSOR” (emphasis added). Softex would have
us conclude that this general “or any other tax” language prevails,
rendering meaningless the preceding clause specifically assigning
to Softex an obligation to pay a portion of the taxes on the
property. Because we consider the terms of the lease together,
rejecting interpretations that would render portions of the
contract meaningless, see 31 P.R. Laws Ann. § 3475, we find this
argument meritless.
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on the remainder of Softex’s counterclaim (i.e., relocation costs
and prior property taxes paid by Softex).6 The district court did
not make any factual findings regarding the relocation costs, nor
did it draw any legal conclusions that could form a basis for
imposing liability on Equitable.
Equitable argues that any costs sought by Softex would
have been incurred in vacating the property at the conclusion of
the lease, and that Softex has neither alleged nor proven any
wrongdoing on Equitable’s part that would give rise to liability
for such costs. Faced with the uncontested facts as presented by
Equitable, and the dearth of documentation regarding the amount and
nature of the damages sought by Softex,7 we agree with Equitable.
6
We reverse the district court’s award of property taxes to
Softex for the reasons discussed in Section II.A., above, and
therefore limit our discussion of Softex’s counterclaims to the
issue of relocation expenses.
7
Even if we did not adopt Equitable’s version of the facts,
Softex’s opposition to Equitable’s motion to dismiss (a putative
motion for summary judgment on its counterclaims) presented no
evidence documenting its purported $33,620.61 in relocation costs.
Its sole supporting affidavit, a statement by an officer of the
company, merely stated that Softex incurred “relocation expenses .
. . due to the bad faith perpetrated by landlord onto the tenant.”
On appeal, Softex asks us to take judicial notice of the fact that
it was forced to move equipment and machinery approximately thirty
miles, which resulted in various fees and costs. Such matters are
not susceptible to judicial notice. American Foreign Ins. Assn. v.
Seatrain Lines of P.R., Inc., 689 F.2d 295, 297 (1st Cir. 1982).
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Accordingly, we also reverse the judgment below to the extent it
awards Softex damages on its claim for relocation expenses.
III. Conclusion
For the foregoing reasons, we reverse and remand with
instructions to enter judgment for Equitable on the issue of
liability and dismissal of the counterclaims asserted by Softex.
The case is remanded to determine the amount of Equitable’s damages
in further proceedings consistent with this opinion.
So ordered.
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