Rockwell Acquisitions, Inc. v. Ross Dress For Less, Inc.

FILED
United States Court of Appeals
Tenth Circuit
August 24, 2010
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
ROCKWELL ACQUISITIONS, INC.,
an Oklahoma corporation,
Nos. 09-6065 and 09-6120 *
Plaintiff-Appellant,
v. (W.D. of Okla.)
ROSS DRESS FOR LESS, INC., a (D.C. No. CV-08-146-F)
Virginia corporation,
Defendant-Appellee.
ORDER AND JUDGMENT **
Before TYMKOVICH, SEYMOUR, and BALDOCK, Circuit Judges.
Rockwell Acquisitions, Inc., an Oklahoma City shopping center owner,
appeals the district court’s summary judgment in favor of one of its tenants, Ross
Dress for Less, Inc. The dispute concerns a provision of the lease between
Rockwell and Ross that requires certain anchor tenants to occupy the shopping
center and the definition of an anchor tenant. Ross alleges Rockwell violated the
*
Case No. 09-6120 was submitted on the briefs by the court’s Order, dated
May 4, 2010.
**
This order and judgment is not binding precedent except under the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.
required co-tenancy lease provision when it replaced an anchor tenant, Big Lots,
with smaller retailers. As a result, Ross invoked a provision of the lease that
allowed it to pay reduced rent because of the violation. Rockwell in turn claimed
Ross violated the lease in doing so, and the dispute disrupted Rockwell’s planned
sale of the shopping center.
Rockwell sued Ross in Oklahoma state court, alleging breach of contract
and tortious interference with Rockwell’s contract to sell the shopping center to
another developer. Ross removed the suit to the Western District of Oklahoma,
and the district court granted summary judgment in favor of Ross. Rockwell now
appeals the breach of contract and tortious interference rulings, as well as the
assessment of attorneys’ fees.
Exercising jurisdiction under 28 U.S.C. § 1291, we AFFIRM.
I. Background
A. The Lease’s Provisions
In January 2005, Ross signed a 10-year lease for retail space with
Rockwell. 1 The lease specifies two rents: (1) a “minimum rent” of $22,593.75 per
month, and (2) a “substitute rent,” defined as two percent of Ross’s gross sales
(assuming that is less than the “minimum rent”).
1
The lease executed in 2005 states the tenant’s rent commences 120 days
after the Intended Delivery date of January 9, 2006 (Section 1.4.1 of the Lease).
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The lease also lists “Required Co-Tenants.” The focus of the parties’
dispute is the lease provision defining required co-tenancy, 1.7.1, that states:
At least all of the following three (3) Co-Tenants [or other comparable
replacement Anchor Tenant (as defined below) replacing one (1) or
more of the named Co-Tenants (“Required Co-Tenants”) occupying no
less than ninety percent (90%) of the Required Leasable Floor Area of
the Required Co-Tenant being replaced] occupying no less than
Ninety-percent (90%) of the Required Leasable Floor Area indicated as
follows:
Co-Tenant’s Name Required Leasable Floor Area
(minimum sq. ft.)
(a) Target 113,000
(b) Big Lots 27,000
(c) PetsMart 20,000
An “Anchor Tenant” is a national retailer with at least one hundred
(100) stores or a regional retailer with at least seventy-five (75) stores. 2
(emphasis added; brackets in original). If the required co-tenants are not open
and operating during any portion of Ross’s lease, Ross may be entitled to pay the
lower substitute rent.
The lease provides two primary reporting mechanisms by the landlord
concerning occupancy. First, it requires Rockwell to provide to Ross a tenant
2
Section 1.7.1 of the lease uses the singular term for an Anchor Tenant (R.
Vol. 1, p.28) but Rockwell’s Brief in Support of its Response to the Motion for
Summary Judgment erroneously quoted Section 1.7.1 using the plural (R. Vol. 1,
p.334) and mistakenly retained this line of thought in its arguments before the
district court, which granted summary judgment favoring Ross. Rockwell’s
appellate briefing correctly quotes the singular term of an Anchor Tenant (Aplt.
Opening Brief, pp.4, 13) but pluralizes the term when combining two tenants as
Anchor Tenants, avoiding defining each as an Anchor Tenant (id. at p.5).
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roster and occupancy report annually, in January or February. Second, Section
6.1.3 of the lease states “Landlord shall promptly notify” Ross if the lease’s
occupancy conditions are not met.
B. Big Lots Vacates, New Stores Move In
In the fall of 2005, Big Lots—a required co-tenant in Ross’s
lease—informed Rockwell of its intent to terminate its lease due to financial
difficulties. On January 31, 2007, Big Lots closed its store in the shopping
center. Three weeks before Big Lots vacated the shopping center, Rockwell sent
Ross the annual tenant roster, which showed Big Lots as a current tenant.
In early 2006—between the time Big Lots notified Rockwell of its intent to
terminate the lease and the time Big Lots actually closed its store—Rockwell
leased other space in the shopping center to Famous Footwear and K&G Men’s
Company. 3 Both Famous Footwear and K&G qualify as national or regional
retailers under Ross’s lease. Combined, Famous Footwear and K&G leased a
space equivalent to 90 percent of the Big Lots store; separately, neither store
occupied 90 percent of Big Lots’s space. Famous Footwear and K&G began
operating in late 2006, before Big Lots closed its store.
3
Rockwell signed a lease with Famous Footwear in March 2006, then with
K&G Men’s Company in April 2006, and began collecting on its lease with Ross
in June 2006, having received Big Lots’s intention to end its lease back in the fall
of 2005. Though this congregate of spring 2006 timing might beg the question of
which of these three tenants might be considered a replacement, this issue was not
briefed nor argued here.
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After Big Lots closed its store, in June 2007, Rockwell leased part of Big
Lots’s former store to Harold’s. Harold’s occupied less than 90 percent of Big
Lots’s space, and Harold’s did not qualify as a national or regional retailer. 4
C. Litigation
Ross continued to pay minimum rent until December 2007. At that time,
Rockwell asked Ross for an estoppel certificate waiving claims against Rockwell
in preparation for the shopping center’s sale. Shortly thereafter, Ross requested a
tenant roster, and within weeks asserted it had overpaid rent because it should
have been paying only the substitute rent from the time Big Lots closed its store
in January 2007. Ross declined to execute the estoppel certificate, and after it
began withholding rent to make up for the claimed overpayment, Rockwell sued.
In its suit, Rockwell alleged Ross breached its lease by refusing to pay the
minimum rent, and Ross’s withholding of rent tortiously interfered with
Rockwell’s sale of the shopping center. Ross moved for summary judgment,
arguing the required co-tenancy provision of the lease unambiguously entitled it
to pay the lower substitute rent because Rockwell had failed to replace Big Lots
with an appropriate required co-tenant. The district court concluded the lease’s
co-tenancy provision required Rockwell to replace Big Lots with one comparable
anchor tenant. Because Rockwell replaced Big Lots with two small tenants
4
Prior to this appeal, Harold’s filed for bankruptcy and vacated the
shopping center.
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instead of one large tenant, the co-tenancy requirement was not met, and Ross
was entitled to pay the substitute rent.
The district court consequently granted summary judgment for Ross on
both claims and awarded Ross attorneys’ fees.
II. Discussion
A. Standard of Review
We review the district court’s grant of summary judgment de novo. City of
Herriman v. Bell, 590 F.3d 1176, 1180 (10th Cir. 2010). “Summary judgment is
appropriate if there is no genuine issue of material fact and . . . the moving party
is entitled to judgment as a matter of law. We examine the factual record and
draw all reasonable inferences in the light most favorable to the nonmoving
party.” Id. at 1181 (internal citation and punctuation omitted).
B. The Required Co-Tenancy Provision
The crux of the appeal is whether the lease’s required co-tenancy provision
mandated that Rockwell replace Big Lots with a “comparable replacement Anchor
Tenant” or allowed Rockwell to replace Big Lots with multiple, smaller tenants.
This very narrow question turns on a careful parsing of the provision’s text. “A
lease is a contract and in construing a lease, the usual rules for the interpretation
of contractual writings apply. Generally, the terms of the parties’ contract, if
unambiguous, clear, and consistent, are accepted in their plain and ordinary
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sense . . . .” Osprey L.L.C. v. Kelly-Moore Paint Co., 984 P.2d 194, 198 (Okla.
1999).
To satisfy the co-tenancy provision, Rockwell must fulfill two
requirements: (1) all three of the “named” co-tenants—Target, Big Lots, and
PetsMart—must be open and operating in the shopping center, and (2) the named
co-tenants must occupy at least 90 percent of the specified floor area. If
Rockwell does not fulfill these two requirements, it can still satisfy the co-
tenancy provision by exercising the “comparable replacement Anchor Tenant”
option. The anchor tenant option has three requirements: the tenant must (1) be
“a national retailer with at least one hundred (100) stores or a regional retailer
with at least seventy-five (75) stores,” (2) “replac[e] one (1) or more of the named
Co-Tenants,” and (3) “occupy[] no less than ninety percent (90%) of the Required
Leasable Floor Area of the Required Co-Tenant being replaced.” Thus, for
example, if a national retailer such as Kohl’s replaced Target, it would have to
occupy at least 90 percent of the 113,000 square feet designated to Target.
Despite the second requirement of the anchor tenant option—that an
“Anchor Tenant . . . replac[e] one (1) or more of the named Co-Tenants”—
Rockwell contends it was allowed to substitute two anchor tenants for one named
co-tenant without at least one of the substitutes satisfying the 90 percent
provision. Rockwell argues a separate provision in the lease, 26.7, modifies the
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plain language of the required co-tenancy provision. Under the heading
“Gender,” 26.7 reads, in full:
Words of gender used in this Lease shall be deemed to include other
genders, and singular and plural words shall be deemed to include the
other, as the context may require.
Rockwell reasons because singular and plural words may include each other,
“Anchor Tenants” (plural) may substitute for “Anchor Tenant” (singular) in the
required co-tenancy provision, and therefore the lease authorized its actions when
it replaced Big Lots with Famous Footwear and K&G.
Rockwell’s argument based on the lease’s gender provision is unavailing.
More specifically, the gender provision does not require singular and plural nouns
to substitute for each other in the lease’s entirety, but instead “as the context may
require.” (Emphasis added.) The required co-tenancy provision plainly allows a
singular—one— anchor tenant to replace one or more required co-tenants. The
provision’s use of the singular when describing “Anchor Tenant” and a redundant
use of plural when describing co-tenants (“one (1) or more of the named Co-
Tenants”) shows the provision’s language is careful when describing numbers.
We “will not create an ambiguity by using a forced or strained construction, by
taking a provision out of context, or by narrowly focusing on [a] provision.”
Osprey, 984 P.2d at 199. A context-specific admonition—buried in another part
of the lease—to read the lease’s gendered and numerated nouns liberally cannot
overcome the unambiguous meaning of the required co-tenancy provision.
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Rockwell’s other textual arguments can be dispensed with briefly. First,
the co-tenancy provision requires “[a]t least all of the following (3) three Co-
Tenants,” be open and operating, and it lists Target, Big Lots, and PetSmart.
Rockwell reasons that because the co-tenancy provision contemplates there could
be more than three required co-tenants, numerous small anchor stores can replace
a single named co-tenant. This argument is meritless. The number of required
co-tenants is a question separate and apart from how many anchor tenants may
replace each co-tenant—the latter is a textual question addressed to the anchor
tenant option, discussed above.
Second, Rockwell argues an “anchor tenant” is not defined by leaseable
floor space. Therefore, it may replace a named co-tenant with tenants of any size
so long as they meet the anchor tenant definition, i.e., they have the requisite
number of stores regionally or nationwide. Rockwell is correct in one sense: the
co-tenancy provision does not define “anchor tenant” by square footage, instead
relying on whether the tenant has a sufficiently large number of sister-stores in its
chain. If the co-tenancy provision allowed any anchor tenant to replace a named
co-tenant, Rockwell would have a winning argument. But the clause only allows
replacement by an anchor tenant “occupying no less than ninety percent” of the
named co-tenant’s leasable space. Put differently, anchor tenancy is a necessary
but not sufficient condition to a store replacing a named co-tenant: the store must
also occupy the requisite leasable floor space of the departing tenant. Otherwise,
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multiple qualifying Anchor Tenants could share limited space within a single
store.
In sum, the lease’s co-tenancy provision required Rockwell to replace Big
Lots with one anchor tenant occupying at least 90 percent of Big Lots’s space.
Rockwell did not do so, and therefore it breached the lease agreement.
C. Estoppel
Rockwell argues even if it did violate the lease, Ross is estopped from
enforcing the required co-tenancy provision because Ross knew of the violation
yet remained silent for months. Oklahoma courts have developed a five-part test
for equitable estoppel claims:
The essential elements of an “equitable estoppel” are: First, there must
be a false representation or concealment of facts. Second, it must have
been made with knowledge, actual or constructive, of the real facts.
Third, the party to whom it was made must have been without
knowledge, or the means of knowledge, of the real facts. Fourth, it
must have been made with the intention that it should be acted upon.
Fifth, the party to whom it was made must have relied on or acted upon
it to his prejudice. The representation or concealment, mentioned, may
arise from silence of a party under imperative duty to speak; and the
intention that the representation or concealment be acted upon may be
inferred from circumstances.
Dixon v. Roberts, 853 P.2d 235, 239 (Okla. App. 1993) (quoting Flesner v.
Cooper, 162 P. 1112, 1112 (Okla. 1917)).
The district court correctly held Ross was not estopped from enforcing the
required co-tenancy provision. Rockwell’s “estoppel by silence” argument fails,
first, because Ross did not have a duty to alert Rockwell to the lease violation.
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See Sautbine v. Keeler, 423 P.2d 447, 452 (Okla. 1966) (“To constitute estoppel
by silence requires not only opportunity to speak, but also an obligation to
speak.”); Dixon, 853 P.2d at 238 (quoting Lacy v. Wozencraft, 105 P.2d 781, 783
(Okla. 1940)) (estoppel by silence occurs when “a person has been silent on some
occasion when he should have spoken”). The lease places the duty to speak
squarely on Rockwell, requiring Rockwell to “promptly notify” Ross if the
occupancy requirements are not met. Even if we assume Ross knew of the lease
violation prior to its withholding of rent, it did not have a “duty to speak”
required under Oklahoma’s estoppel law, nor was its knowledge a basis for
acquiescence to the breach.
Second, even if Ross somehow had a “duty to speak,” Rockwell’s estoppel
argument still fails because Rockwell was just as aware of the lease terms and
relevant facts as Ross. Not only did Rockwell have actual knowledge and “means
of knowledge” about the lease terms and Big Lots’s vacancy, it had better
knowledge of that information than Ross. Rockwell responds it was not aware of
any lease violation because it did not believe the replacement tenants constituted
a violation. Rockwell, in essence, argues that if it were wrong about interpreting
the lease, it did not have the requisite knowledge of the legal controversy.
Oklahoma’s estoppel test, however, requires the party arguing for estoppel to lack
“means of knowledge” about “real facts.” Rockwell not only had the ability to
know but actually did know the facts that constitute this legal dispute.
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Rockwell points to Bowen v. Freeark, 370 P.2d 546 (Okla. 1962), in
support of its estoppel argument. See Aplt. Br. at 27–30. Bowen involved a
purchase option agreement between a lessor and lessees. If the lessor intended to
sell the property, the agreement gave the lessees the right to purchase it from the
lessor at the sale price within 10 days of the lessor’s notice of intent to sell.
Bowen, 370 P.2d at 548. When the lessor notified the lessees she wanted to sell
the building, the lessees stated they did not want to purchase the building, and
seven days later the lessor sold the building to a third party. Five weeks after the
sale, the lessees attempted to exercise their purchase option. The Supreme Court
of Oklahoma held in favor of the lessor, reasoning that the “plaintiff was in a
position where he was faced with the duty of making known his rights under the
option agreement or remaining silent.” Id. at 550. The lessees remained silent
and consequently were estopped from exercising their option.
Bowen is distinguishable for two reasons. First, while the party on which
the contractual duty to speak rested, the lessor in Bowen who wanted to sell the
property, actually spoke—Rockwell did not properly inform Ross as the contract
required. After the Bowen lessor informed the lessees of her intent to sell, the
lessees stated they did not want to exercise their option. Likewise, Rockwell
could have informed Ross of the lease breach and Ross could have decided not to
take action—but that did not happen here. Second, Bowen’s purchase option had
a time limit: 10 days after the lessor notified the lessees, the lessees had to
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exercise the purchase option or lose it. The lessees waited approximately 35 days
to attempt to exercise their option. Even assuming—counterfactually— that Ross
was notified by Rockwell about the lease violation, no such contractual time limit
existed for Ross to act.
We affirm the district court’s denial of equitable estoppel.
D. Additional Discovery under Rule 56(f)
Rockwell also argues the district court made reversible error by failing to
grant it the opportunity to conduct additional discovery under Rule 56 of the
Federal Rules of Civil Procedure. Rule 56(f) requires a party opposing summary
judgment “by affidavit” to move the court for a continuance to allow additional
discovery. F ED . R. C IV . P. 56(f); see also Been v. O.K. Indus., 495 F.3d 1217,
1235 (10th Cir. 2007) (“Rule 56(f)’s protection is not absolute, however, as its
protection ‘arises only if the nonmoving party files an affidavit explaining why he
or she cannot present facts to oppose the motion.’”). Rockwell made its Rule
56(f) argument in a footnote in its district court response brief and never filed the
requisite affidavit. Rockwell failed to comply with Rule 56(f), and the district
court correctly denied Rockwell additional discovery.
E. Tortious Interference with the Sale Contract; Attorneys’ Fees
Both Rockwell’s tortious interference claim and its request for attorneys’
fees are derivative of our primary rulings today. The district court was correct to
deny Rockwell’s tortious interference claim because Ross was justified in
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asserting its rights in the lease. The district court’s award of attorneys’ fees is
affirmed because we affirm the district court’s grant of summary judgment for
Ross.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court’s grant of
summary judgment.
ENTERED FOR THE COURT
Timothy M. Tymkovich
Circuit Judge
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