Yates Development v. Old Kings Interchange

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 13, 2001
No. 00-14562
THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 00-00249 CV-J-20
IN RE:
YATES DEVELOPMENT, INC.,
Debtor,
YATES DEVELOPMENT, INC.
Plaintiff-Appellant,
versus
OLD KINGS INTERCHANGE, INC.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(July 13, 2001)
Before BLACK and BARKETT, Circuit Judges, and HOBBS*, District Judge.
*
Honorable Truman M. Hobbs, U.S. District Judge for the Middle District
of Alabama, sitting by designation.
BLACK, Circuit Judge:
Appellant Yates Development, Inc., the debtor and plaintiff, appeals the order
of the district court, which affirmed the bankruptcy court’s grant of summary
judgment in favor of Appellee Old Kings Interchange, Inc., the defendant. We affirm.
I. BACKGROUND
The material facts are not in dispute. This case concerns a Settlement and
Option Agreement dated May 22, 1998 (Option Agreement). Pursuant to the
Option Agreement, Appellee, as optionor, granted Appellant, as optionee, two
exclusive options: a first option to purchase a 500-acre parcel of real property
(First Option), and a second option to purchase a 210-acre parcel (Second Option).
Appellant exercised the First Option and purchased the 500-acre parcel. The
Second Option is the subject of this litigation and is described as follows in
Paragraph 4 of the Option Agreement:
4. SECOND OPTION: Provided [Appellant] has timely exercised the
First Option and purchased the First Option Property as described
above, [Appellant] shall retain the exclusive option to purchase the
balance of the Property as described in Exhibit "C" ("Second Option
Property") for the sum of Two Million Eighty Thousand Dollars and
NO/100 ($2,080,000.00) plus the Additional Sum. Said Second
Option shall expire on August 15, 1998 at 6:00 p.m. . . . In the event
[Appellant] fails to exercise the First Option, then this Second Option
shall be null and void. . . .
2
The "Additional Sum" is defined in Paragraph 3 of the Option Agreement as the
sum of $1,000.00 per day from May 15, 1998 until the closing on the first option.
While the parties’ dispute concerns the Second Option and Paragraph 4, the
focal point of this lawsuit is Paragraph 12 of the Option Agreement. Paragraph 12
is a "time of the essence" clause, which states:
12. TIME OF THE ESSENCE: Time shall be of the essence with
respect to each provision of this Agreement that requires action to be
taken by either party within a stated period of time, or upon a
specified date. Notwithstanding the foregoing, if for any reason this
Option Agreement is extended beyond August 15, 1998 and
[Appellant] is entitled to exercise the Option beyond the August 15,
1998 date, then the Purchase Price shall be increased by the sum of
Five Thousand Dollars and NO/100 ($5,000.00) per day for every day
after August 15, 1998 until the ultimate Closing Date.
Another pertinent provision of the Option Agreement is Paragraph 13, which
is an “integration" clause that provides:
13. INTEGRATION: This Option Agreement sets forth the entire
agreement between the parties, and there are no representations,
agreements, arrangements or understandings, oral or written, between
the parties relating to the subject matter of this Agreement, which are
not fully expressed herein. This Agreement may not be changed or
terminated orally or in any manner other than by a written agreement
executed by both parties.
Two final provisions, cited by Appellant, are Paragraph 16B and 16C.
Paragraph 16B provides in part:
As part of the consideration for execution of this Option Agreement,
the parties agree that [Appellant] . . . shall not oppose any Motion
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filed by [Appellee] . . . seeking relief from or modification of the
Automatic Stay of 11 U.S.C., Section 632(a) in any subsequent
bankruptcy case filed by [Appellant].
Paragraph 16B further states that this provision “is a vital and material part of the
consideration for [Appellee] to grant the Option,” and then discusses a previous
bankruptcy filing by Appellant. Paragraph 16C states in part, “[S]hould
[Appellant] file any action, appeal or bankruptcy petition, this Option shall be
automatically terminated.” Neither paragraph is the subject matter of this
litigation. Further, Appellee concedes Paragraph 16C is unenforceable under the
Bankruptcy Code. Nevertheless, Appellant points to these paragraphs as evidence
of the parties’ intent.
On August 14, 1998, the day before the Second Option expired, Appellant
filed a petition under Chapter 11 of the Bankruptcy Code. By operation of 11
U.S.C. § 108(b), Appellant's right to exercise the Second Option was extended for
60 days. On October 13, 1998, the day Appellant's right to exercise the Second
Option under 11 U.S.C. § 108(b) expired, Appellant filed a motion to assume the
Option Agreement under 11 U.S.C. § 365 in order to exercise the Second Option.
Initially, the bankruptcy court denied Appellant's motion, concluding that
Appellant did not have the ability to exercise the option. But, after considering a
renewed motion to assume, the bankruptcy court authorized Appellant to assume
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the Option Agreement. Subsequently, Appellant filed the instant declaratory
action, requesting that Paragraph 12 of the Option Agreement be invalidated and
that Appellant be excused from paying the $5,000.00 per day increase in the
purchase price. In other words, Appellant sought to purchase the 210-acre parcel
for the base price of $2,080,000.00 plus the Additional Sum, but not for the $5,000
per day increase required by Paragraph 12.
The parties filed cross motions for summary judgment. The summary
judgment record included the testimony of Mr. Michael Chiumento, an officer of
Appellee, and an affidavit of Mr. Andrew Jacobson, an attorney for Appellant.
Both the testimony and the affidavit indicated that the parties included Paragraph
12 in the Option Agreement because of a concern that Appellant might file for
bankruptcy. The bankruptcy court held a hearing and granted summary judgment
in favor of Appellee. See Yates Dev., Inc. v. Old Kings Interchange, Inc. (In re
Yates Dev., Inc.), 241 B.R. 247 (Bankr. M.D. Fla. 1999). The district court
affirmed the bankruptcy court.
II. DISCUSSION
We review de novo a bankruptcy court’s grant of summary judgment. See,
e.g., Gray v. Manklow (In re Optical Techs., Inc.), 246 F.3d 1332, 1334 (11th Cir.
2001). Appellant presents three arguments to support its position that Paragraph
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12 of the Option Agreement should not be enforced:1 (1) By filing its bankruptcy
petition prior to August 15, 1998, Appellant timely exercised the Second Option
and thus Paragraph 12 is not triggered; (2) Paragraph 12 is an unconscionable
liquidated damages provision in violation of Florida law; (3) Paragraph 12 is
proscribed by 11 U.S.C. § 365(e)(1). We affirm, without opinion, the bankruptcy
court’s ruling on the first two arguments. See 11th Cir. R. 36-1. Only the third
argument warrants discussion.
Section 365(e)(1) provides in pertinent part:
Notwithstanding a provision in an executory contract or unexpired
lease, . . . an executory contract or unexpired lease of the debtor may
not be terminated or modified, and any right or obligation under such
contract or lease may not be terminated or modified, at any time after
the commencement of the case solely because of a provision in such
contract or lease that is conditioned on—
(A) the insolvency or financial condition of the debtor at
any time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee
in a case under this title or a custodian before such
commencement.
1
In the bankruptcy court, Appellant also argued that 11
U.S.C. § 365(b)(2)(D) voided Paragraph 12. See Yates, 241 B.R. at 251, 255-56.
We do not consider this argument because Appellant has not raised it before this
Court.
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11 U.S.C. § 365(e)(1) (emphasis added). In bankruptcy parlance, § 365(e)(1)
forbids the enforcement of ipso facto clauses. See 3 Collier on Bankruptcy
¶ 365.07 (15th ed. rev. 2001).
The starting point for our interpretation of a statute is always its language.
See Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S. Ct. 2166,
2172 (1989); see also CBS, Inc. v. Primetime 24 Joint Venture, 245 F.3d 1217,
1226–29 (11th Cir. 2001) (explaining that only in the rare instance where a statute
produces an absurd result, should a court not apply a statute’s plain meaning). The
plain meaning canon of statutory construction applies with equal force when
interpreting the Bankruptcy Code. See Inglesby, Falligant, Horne, Courington &
Nash, P.C. v. Moore (In re Am. Steel Prod., Inc.), 197 F.3d 1354, 1356 (11th Cir.
1999); Burns v. United States (In re Burns), 887 F.2d 1541, 1545 (11th Cir. 1989);
see also Lehman v. VisionSpan, Inc. (In re Lehman), 205 F.3d 1255, 1255-56 (11th
Cir. 2000) (noting plain meaning rule in bankruptcy case but applying absurd
exception).
In the context of this case, the language of § 365(e)(1) is not ambiguous.
Section 365(e)(1) proscribes solely three types of clauses — those enumerated in
subsections (A), (B), and (C) — and nothing more. The First Circuit has
accurately described the text of § 365(e)(1):
7
Given the plain language of [§ 365(e)(1)], the word ‘solely’ — though
oddly placed — is more faithfully read to modify the word
‘conditioned,’ thereby clarifying that contractual termination clauses
that are triggered by conditions other than the three listed in
subsections . . . (A), (B), and (C), would not be invalidated by
operation of section 365(e)(1).
Summit Inv. and Dev. Corp. v. Leroux, 69 F.3d 608, 611 (1st Cir. 1995).
The literal language of the condition in Paragraph 12 is not one of the
conditions expressly proscribed by § 365(e)(1). Rather than being contingent on
Appellant’s bankruptcy or some other similar event, Paragraph 12 is contingent on
the passage of time. (“[I]f for any reason this Option Agreement is extended
beyond August 15, 1998 and [Appellant] is entitled to exercise the Option beyond
the August 15, 1998 date, then the Purchase Price shall be increased . . . .”)
Nonetheless, Appellant contends that we should invalidate Paragraph 12 because it
operates to penalize Appellant for filing a bankruptcy petition, in contravention of
federal bankruptcy policies.
Where the language of a statute is plain, we will not look at legislative
history, even if that legislative history evinces a contrary intent. See CBS, 245 F.3d
at 1222, 1229. This rule applies in the context of the Bankruptcy Code. See
Inglesby, 197 F.3d at 1356 (citing In re ProSnax Distrib., Inc., 157 F.3d 414, 425
(5th Cir. 1998)). Therefore, even if we were to conclude that enforcement of
8
Paragraph 12 contravenes general bankruptcy polices, it is irrelevant to our
analysis since the meaning of § 365(e)(1) is plain.
Besides urging us to go beyond the plain language of § 365(e)(1), Appellant
urges us, in a similar vein, to go beyond the plain language of Paragraph 12.
Stated differently, Appellant argues that we should construe Paragraph 12 as being
conditioned on Appellant’s filing for bankruptcy (or something similar) in
contravention of § 365(e), even though the literal language of Paragraph 12 says no
such thing. In making this suggestion, Appellant points to: (1) the extrinsic
evidence of the parties’ intent, in particular the testimony of Mr. Chiumento and
the affidavit of Mr. Jacobson, and (2) the language of the entire Option Agreement,
in particular the provisions in Paragraph 16B and 16C.
With respect to extrinsic evidence, the bankruptcy court correctly recognized
that, under Florida law,2 the parol evidence rule bars admission of extrinsic
evidence which would vary or contradict the unambiguous language of a contract.
See Johnson Enters. of Jacksonville, Inc. v. FPL Group, Inc., 162 F.3d 1290, 1309
(11th Cir. 1998) (applying Florida law); Lawyers Title Ins. Corp. v. JDC (America)
Corp., 52 F.3d 1575, 1580 (11th Cir. 1995) (applying Florida law). This is
2
The parties have proceeded on the assumption that Florida law governs
construction of the contract, and so do we.
9
especially true when the contract contains an integration clause indicating that the
parties intended the written agreement to be the entire agreement. See Johnson,
162 F.3d at 1309. In this case, Paragraph 12 of the Option Agreement is
unambiguous, and Paragraph 13 is an integration clause. Therefore, reliance on
extrinsic evidence would be improper.
With respect to Paragraphs 16B and 16C, Appellee concedes that, when
construing a contract, a court should look to the whole contract. See, e.g., Transp.
Rental Sys., Inc. v. Hertz Corp., 129 So. 2d 454, 456 (Fla. 3d DCA 1961). Both
Paragraphs 16B and 16C reveal that Appellant’s potential bankruptcy was on the
minds of the parties when they entered into the contract. Moreover, as Appellee
concedes, Paragraph 16C is an illegal ipso facto clause. But none of this changes
the plain language of Paragraph 12 and transforms that provision into one of the
three disallowed conditions under § 365(e)(1). Under the plain language of
Paragraph 12, Appellant and Appellee negotiated for an increased price on the 210-
acre parcel in the event Appellant exercised the Second Option after August 15,
1998. Appellant is perhaps unhappy with the bargain it struck. Regardless, “[i]t is
never the role of a . . . court to rewrite a contract to make it more reasonable for
one of the parties or to relieve a party from what turns out to be a bad bargain.”
10
Barakat v. Broward County Hous. Auth., 771 So. 2d 1193, 1195 (Fla. 4th DCA
2000).
III. CONCLUSION
In this declaratory bankruptcy action, Appellant has asked us to rewrite the
unambiguous language of 11 U.S.C. § 365(e)(1) and to rewrite the unambiguous
language of a contract provision. We shall do neither. The bankruptcy court and
the district court were both correct in concluding that Appellee was entitled to
summary judgment.
AFFIRMED.
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