Yates Development, Inc. v. Old Kings Interchange, Inc.

IN RE: YATES DEVELOPMENT, INC., Debtor.
Yates Development, Inc., Plaintiff-Appellant,
v.
Old Kings Interchange, Inc., Defendant-Appellee.
No. 00-14562.
United States Court of Appeals,
Eleventh Circuit.
July 13, 2001.
Appeal from the United States District Court for the Middle District of Florida. (No. 00-00249-CV-J-20),
Harvey E. Schlesginer, Judge.
Before BLACK and BARKETT, Circuit Judges, and HOBBS*, District Judge.
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....
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.
*
Honorable Truman M. Hobbs, U.S. District Judge for the Middle District of Alabama, sitting by
designation.
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 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 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 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.
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, 104 L.Ed.2d 811 (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):
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 Pro-Snax Distrib., Inc., 157 F.3d 414, 425 (5th
Cir.1998)). Therefore, even if we were to conclude that enforcement of 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 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." Barakat v. Broward County
Hous. Auth., 771 So.2d 1193, 1195 (Fla. 4th DCA 2000).
III. CONCLUSION
2
The parties have proceeded on the assumption that Florida law governs construction of the contract,
and so do we.
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.