David Powell, Sr. v. TPI Petroleum

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 07-1009
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David R. Powell, Sr., *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
TPI Petroleum, Inc., *
*
Appellant. *
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Submitted: September 24, 2007
Filed: December 27, 2007
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Before WOLLMAN, HANSEN, and RILEY, Circuit Judges.
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WOLLMAN, Circuit Judge.
TPI Petroleum, Inc. (TPI), appeals from the judgment against it in a breach-of-
contract case arising from TPI’s removal of four underground storage tanks (the tanks)
from realty it leased from David Powell, Sr. TPI argues that, inter alia, the evidence
presented in the case was insufficient to prove breach or damages. We affirm the
judgment with respect to the breach issue and reverse and remand for a new trial on
the damages issues.
I. Background
Over a twenty-year period beginning in April 1983, TPI and its predecessor
leased realty from Powell and his predecessor for use as a gas station. When TPI’s
predecessor took possession of the property, it remodeled the existing gas station and
replaced the fuel system and tanks. In 2003, TPI elected not to exercise its final
renewal option under the lease and notified Powell that it intended to remove the fuel
system, including the tanks. Powell disputed TPI’s claimed ownership of the tanks
and insisted that they remain with the realty. Following failed negotiations between
the parties, TPI removed the tanks and had them destroyed.
Powell filed suit for breach of contract, complaining that the lease forbade
TPI’s removal of the tanks. The provisions of the lease prohibited waste, incorporated
the law of fixtures, and addressed what additions and removals the lessee could make
with respect to the property. The tanks were explicitly listed as items that could be
added, but were not listed as items that could be removed. The district court entered
judgment on the jury’s general verdict for Powell and denied TPI’s combined motions
for judgment as a matter of law and a new trial.
II. Analysis
A. Motion for Judgment as a Matter of Law
As a threshold issue, Powell asserts that TPI waived post-trial consideration and
appellate review of the issues contained in its motion for judgment as a matter of law
(JAML) made at the close of Powell’s evidence by failing to move for JAML again
at the close of all evidence. We review for abuse of discretion the district court’s
decision to consider TPI’s post-trial motion for JAML. Minn. Supply Co. v.
Raymond Corp., 472 F.3d 524, 535 (8th Cir. 2006).
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TPI’s motion clearly falls within the BE & K exception to our requirement that
a motion for JAML under Federal Rule of Civil Procedure 50(a) be made at the close
of all evidence in order to be renewed post-trial under the version of Federal Rule of
Civil Procedure 50(b) in effect at the time of TPI’s motion.1 The BE & K exception
rests on the district court’s indication that the motion would not be waived, the short
time before the close of all evidence, the small number of new witnesses following the
motion, and the lack of additional evidence offered by the nonmovant.2 BE & K
Constr. Co. v. United Bhd. of Carpenters & Joiners of Am., 90 F.3d 1318, 1325 (8th
Cir. 1996). In Raymond, we held that the exception applied when the district court
flatly denied the Rule 50(a) motion without taking it under advisement, one day and
two witnesses remained before the close of all evidence, and the district court
considered the Rule 50(b) motion on the merits. 472 F.3d at 535-36. In this case, the
district court unequivocally deferred ruling on TPI’s Rule 50(a) motion hours before
the close of all evidence and explicitly permitted Powell to file a supporting brief to
respond to the motion and to the single witness following it. The facts in this case
therefore fall more clearly within the BE & K exception than did those in Raymond.
Powell also argues for the first time on appeal that TPI’s Rule 50(a) motion for
JAML failed adequately to specify the law and facts defining the issues on which it
sought judgment. Powell’s argument lacks merit, and we need not consider it further.
We agree with the district court that TPI did not waive its JAML issues, and we
turn to the merits.
1
Federal Rule of Civil Procedure 50(b) has been amended twice since the trial
in this case.
2
Although dicta in Mathieu v. Gopher News Co. asserts that we have never
recognized the BE & K exception, 273 F.3d 769, 777 (8th Cir. 2001), the holdings in
BE & K and the more recent case of Raymond do recognize it. Raymond, 472 F.3d
at 535-36; BE & K, 90 F.3d at 1325.
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B. Breach of Contract
To prevail on a breach-of-contract claim, a plaintiff must prove (1) the existence
of a valid agreement; (2) the defendant’s breach of that agreement; and (3) the
plaintiff’s damages resulting from the breach. Foreman Sch. Dist. No. 25 v. Steele,
61 S.W.3d 801, 807 (Ark. 2001). TPI does not dispute the validity of the lease,
contesting only issues relating to the elements of breach and damages.
1. Weight of the Evidence
TPI contends that Powell’s evidence was insufficient to prove that TPI’s
removal of the tanks breached the lease agreement. TPI presented this argument in
its initial Rule 50(a) motion for JAML. We agree with the district court’s conclusion
that JAML is inappropriate here because there is sufficient evidence to support a
finding of breach, and thus decision on the issue would require weighing the evidence
and assessing credibility.
Alternatively, TPI argued in its motion for a new trial that because the evidence
overwhelmingly supported the conclusion that the tanks were trade fixtures, the jury
ignored its instruction on trade fixtures when it issued its general verdict in Powell’s
favor. We review for abuse of discretion, and where, as here, “the basis of the motion
for a new trial is that the jury’s verdict is against the weight of the evidence, the
district court’s denial of the motion is virtually unassailable on appeal.” Wash.
Solutions, Inc. v. PDQ Mfg., 395 F.3d 888, 892 (8th Cir. 2005) (internal quotation
omitted). Accordingly, we hold that the district court did not abuse its discretion in
denying the motion for a new trial on the issue of breach.
First, we agree with the district court that the evidence did not overwhelmingly
indicate that the tanks were trade fixtures. Applying Arkansas’s test for determining
whether an object is a fixture, and thus part of the lessor’s realty, or a trade fixture,
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and thus the lessee’s chattel, we consider (1) whether the tanks were annexed to
Powell’s realty, (2) whether they were appropriate for or adapted to the realty’s use,
and (3) the objective intention of TPI’s predecessor at the time of annexation. Pledger
v. Halvorson, 921 S.W.2d 576, 577-78 (Ark. 1996). Intent is paramount and is
inferred from the nature of the object and the mode of its annexation, the relationship
between the parties, and the object’s purpose. Id. at 578. That TPI’s predecessor was
a commercial tenant and that the tanks were used in its trade are factors that would
support a finding that the tanks were trade fixtures. On the other hand, the tanks were
also cumbersome structures buried under concrete on realty used as a gas station,
which suggests that they were fixtures.
Furthermore, even if the tanks were considered to be trade fixtures, the jury
could find from other provisions of the lease and from witness testimony that TPI had
breached the lease. The question before the jury with respect to the issue of breach
was whether the parties intended the lease to permit or to prohibit TPI’s removal of
the tanks.
Section 3.01 of the lease, entitled “Use of Premises,” provides in relevant part
that
Tenant shall have the right from time to time, as it may desire, to build
or rebuild such buildings, structures, drives and pump islands, and to
install such storage tanks, pumps, lifts, hoists, and other equipment; and
to make such other installations and constructions as it deems proper for
the sale and distribution of petroleum products, automobile accessories
and/or as a convenience store . . . .
Section 3.02, entitled “Removal of Property,” provides that
Tenant shall have the right at any time during the continuance of said
Lease or within thirty (30) days after its termination, to sever and remove
all pumps, machinery, compressors, and other any [sic] part of same. All
such buildings, structures and improvements placed upon the leased
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premises by Tenant during the continuance of said Lease of the kind and
character normally deemed in law to become a part of the realty, shall be
and remain the property of Landlord.
Whether the tanks were fixtures or trade fixtures may have been relevant to but
was not determinative of the jury’s finding of breach. The lease’s explicit
identification of tanks as items that could be added to the property and its silence as
to their removal could be found to express the parties’ intention that the tanks remain
with the realty. The parties’ use of the word “sever” to refer to the removable
equipment could be found to imply permission to remove only above-ground
equipment and not underground storage tanks. Additionally, the development
manager who negotiated the lease for TPI’s predecessor testified that the predecessor
did not anticipate removing its tanks when it entered the lease.
2. Instruction for Construal Against Drafter
TPI contends that the district court erred in refusing to give TPI’s proposed
instruction directing the jury to construe unresolved ambiguities against the contract’s
drafter. We review for abuse of discretion the district court’s refusal to submit a
requested instruction. Ford v. GACS, Inc., 265 F.3d 670, 679 (8th Cir. 2001). The
usage note to Arkansas Model Instruction 2424, upon which TPI’s instruction was
based, states that the instruction may be inappropriate where the contract’s language
was negotiated by both parties, and thus no party may be readily identified as the
drafter. Ark. Model Jury Instruction—Civil 2424 (2007). Both parties contributed
to the lease’s language, and the ambiguities relevant to this case lie within and
between sections to which both parties contributed. Sections 3.01 and 3.02 were part
of the boilerplate lease contributed by TPI’s predecessor. Powell testified that he may
have modified Section 3.02 and that he added Section 6.09, which included a
provision requiring the deliverance of “the lands and premises leased, with the
improvements thereon” to the landlord at the termination of the lease. Accordingly,
the district court did not abuse its discretion in refusing the instruction.
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We affirm the district court’s judgment with respect to the issue of breach.
C. Damages
TPI contests, inter alia, the sufficiency of the evidence supporting Powell’s
claims for compensatory and consequential damages resulting from TPI’s breach of
the lease. We review the sufficiency of the evidence de novo, viewing the evidence
in the light most favorable to the nonmovant and determining whether a factfinder,
using reasonable inferences, could rationally find for the nonmovant on that issue.
First Union Nat’l Bank v. Benham, 423 F.3d 855, 863 (8th Cir. 2005).
1. Compensatory Damages
TPI and Powell agreed, and the district court instructed, that the cost of
replacing the tanks is the appropriate measure of Powell’s compensatory damages.
The district court also instructed that the award should not put Powell in a better
position than he would have been in had the lease not been breached. This
formulation accords with well-established Arkansas law for damage to chattel affixed
to realty, which requires replacement of the damaged chattel in its previous condition.
Barnes v. Young, 382 S.W.2d 580, 583 (Ark. 1964); Mo. Pac. RR. Co. v. Wood, 263
S.W. 964, 965 (Ark. 1926); Bush v. Taylor, 197 S.W. 1172, 1174 (Ark. 1917). TPI
maintains that to place Powell in the position he would have been in absent a breach,
the evidence must establish the cost of replacing the tanks as they were at the time of
their removal. Calculation of these damages may be done in two ways: the tanks’
market value at the time of removal, or the cost of replacement reduced by a
consideration of depreciation. Wood, 263 S.W. at 965. At trial, Powell presented two
bids for the installation of new gas station equipment as the sole evidence of his
compensatory damages. No evidence of the tanks’ market value or depreciation was
presented, and thus TPI contends that judgment as a matter of law be entered in its
favor based on Powell’s failure to satisfy his burden of proof or, in the alternative, that
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a new trial be granted on the issue of damages. Powell counters that TPI’s position
is impracticable because current environmental laws require the installation of new
tanks.
Arkansas law does not recognize a practicability inquiry in the application of
its damages rule. In Barnes, the Arkansas Supreme Court held that the measure of
damages for the destruction of a fifty-year-old fence was not the total cost of
replacement, but only the cost of replacement of the existing fence in the same
condition as existed when destroyed. 382 S.W.2d at 583. Powell has established that
he suffered damages, and he is entitled to some recovery therefor. The notion of
replacing aged property in its previous condition is abstract and even fictional; what
it expresses is the Arkansas courts’ requirement that the interests of the parties be
balanced in the calculation of money damages. See Wood, 263 S.W. at 965
(presenting methods of calculating money damages for the replacement of destroyed
fixtures). The cost of replacing the tanks reduced by depreciation is thus a fair
measure for both parties, especially in cases such as this one, in which the difference
in condition is significant. In this case, the measure of compensatory damages would
be best represented as the cost of installing the new tanks reduced by the difference
in value between the new tanks and the old tanks, though the market value of the old
tanks at the time of their removal would presumably also be an acceptable measure
of damages. Id. Accordingly, we remand for a new trial on the issue of compensatory
damages under the valuation formulations reflected in Arkansas case law.
2. Consequential Damages
TPI also contends that the evidence was insufficient to prove Powell’s claim for
consequential damages in the form of lost rent resulting from TPI’s removal of the
tanks. For Powell to prevail on this claim, the evidence must first show that it is
reasonably certain that he lost rent due to TPI’s breach; the second, separate issue of
the lost rent’s value may be shown by a lesser standard of proof. See Bank of Am.,
N.A. v. C.D. Smith Motor Co., 106 S.W.3d 425, 434-36 (Ark. 2003).
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We agree that the evidence, even when taken in the light most favorable to
Powell, is insufficient to show that the removal of the tanks caused Powell’s loss in
rental value. Merely providing evidence of what the previous tenant paid and of what
rent offers were later made does not establish with reasonable certainty that the
difference was caused by the breach. Instead, it satisfies the second part of the
analysis by evincing a value and is thus necessary, but not sufficient, for recovery of
consequential damages. Powell cites Sumlin v. Woodson, a holdover tenant case, for
the proposition that evidence of rental value alone is sufficient to establish lost rents.
199 S.W.2d 936 (Ark. 1947). The first part of the analysis is implicit in Sumlin: the
landlord’s inability to accept the actual rental offer(s) he received was caused with
reasonable certainty by the tenant’s continued possession of the property. In contrast,
Powell asserts that the change in the rental value reflects his inability to attract a
petroleum tenant due to the removal of the tanks, but he failed to produce evidence
tending to show with reasonable certainty that he could have rented to a petroleum
tenant had the tanks been in place or that the tanks’ removal was the reason why no
prospective petroleum tenant made an offer.
As with the matter of compensatory damages, we also remand for new trial the
issue of consequential damages under the principles set forth in the Arkansas cases.
D. Attorney’s Fees
In light of our reversal of a portion of the judgment, we also vacate the award
of attorney’s fees, the amount of which should be determined by the district court
following the new trial on the issue of damages. See Dawson v. Temps Plus, Inc., 987
S.W.2d 722, 729 (Ark. 1999).
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We affirm the district court’s judgment with respect to the breach issue, reverse
with respect to the damages issues and attorney’s fees, and remand the case to the
district court for a new trial in accordance with the views set forth in this opinion.
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