Michelin North America, Inc. v. First Industrial NLF 12 JV, LLC

Opinion issued February 13, 2014
In The
Court of Appeals
For The
First District of Texas
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NO. 01-12-00677-CV
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MICHELIN NORTH AMERICA, INC., Appellant
V.
FIRST INDUSTRIAL NLF 12 JV, LLC, Appellee
On Appeal from the 295th District Court
Harris County, Texas
Trial Court Case No. 2009-16011
MEMORANDUM OPINION
This appeal arises from a declaratory judgment action to construe a
commercial lease and a counterclaim for breach of that lease. A jury returned a
verdict in favor of appellant, Michelin North America, Inc. Appellee, First
Industrial FR NLF 12, LLC, moved for judgment notwithstanding the verdict. The
trial court granted the motion and awarded First Industrial damages for breach of
contract.
On appeal, Michelin argues that the court erred by entering JNOV. Michelin
claims that either it was the party entitled to judgment as a matter of law or,
alternatively, interpretation of the contract was a fact question, and there was
sufficient evidence to support the jury’s verdict. We affirm the judgment.
Background
Michelin keeps some of its famous tires in a large Harris County warehouse.
It used to own this warehouse, but it sold the building in January 2006 to First
Industrial as part of a deal in which it would lease the premises. The parties heavily
negotiated the agreement and deployed lawyers at the bargaining table. The lease
ultimately included a paragraph on insurance which provided that First Industrial
would hold a policy insuring the building but would bill Michelin for the policy’s
costs.
In September 2008, Hurricane Ike damaged the warehouse. During the
preceding years, First Industrial had neglected to bill Michelin for the cost of
insuring the warehouse. Now that the building was in need of repair, however,
First Industrial invoiced Michelin $232,210.04 for insurance premiums covering
February 2006 to the end of 2008. The parties disputed this figure but finally
reached a compromise. Then, First National demanded payment for $1,327,642,
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corresponding to expenses incurred to satisfy the deductible on the warehouse
policy.
Michelin filed suit seeking a declaratory judgment that, since First Industrial
had failed to give advance notice of the amount of the policy’s deductible,
Michelin did not owe the $1.3 million sought. It contended that section 9.2 of the
lease obliged First National to inform it of the size of the deductible at the
beginning of each “Lease Year,” which corresponded to the calendar year. The
section reads:
9.2 Landlord shall maintain: (a) a commercial property insurance
policy covering the Premises (at its full replacement cost), but
excluding Tenant’s and TPL’s personal property; (b) commercial
general public liability insurance covering Landlord for claims arising
out of liability for bodily injury, death, personal injury, advertising
injury and property damage occurring in and about the Premises and
otherwise resulting from any acts and operations of Landlord, its
agents and employees; (c) rent loss insurance; and (d) any other
insurance coverage deemed appropriate by Landlord or required by
Landlord’s lender. All of the coverages described in (a) through (d)
shall be determined from time to time by Landlord, in its reasonable
discretion. All insurance maintained by Landlord shall be in addition
to and not in lieu of the insurance required to be maintained by the
Tenant. Tenant shall pay to Landlord all market-based premiums for
commercial property, casualty, boiler, flood, earthquake, terrorism
and all other types of insurance (other than general public liability
insurance) provided by Landlord and relating to the Premises, all
reasonable administrative costs incurred in connection with the
procurement and implementation of such insurance policies and all
commercially reasonable deductibles paid by Landlord pursuant to
insurance policies required to be maintained by Landlord under this
Lease (collectively, “Insurance Costs”). Landlord shall notify Tenant
of the amount of such Insurance Costs for each Lease Year and
Tenant shall pay, on the first day of each month during that Lease
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Year, an amount equal to such amount divided by 12 (or the fractional
portion of the Lease Year remaining at the time Landlord delivers its
notice of the amounts due from Tenant for that Lease Year); or at
Landlord’s election, Landlord may instead bill Tenant annually for
such insurance charges and Tenant shall pay all such charges to
Landlord, as Additional Rent, within thirty (30) days after Landlord’s
delivery of written demand therefor. Notwithstanding the preceding
provisions of this grammatical paragraph concerning insurance to be
procured and maintained by Landlord, Tenant shall have the right, at
any time during the term and upon sixty (60) days’ advance written
notice to Landlord, to elect to itself procure and maintain the property
insurance described in (a) above (the “Tenant’s Insurance Election”).
Tenant may not exercise Tenant’s Insurance Election in the event of a
breach or default by Tenant hereunder that remains uncured at the
time Tenant desires to exercise Tenant’s insurance Election. If Tenant
exercises Tenant’s Insurance Election, then Tenant shall be solely
responsible for the timely payment of all insurance premiums imposed
with respect to such property insurance, and all of the applicable
provisions of Section 9.1 shall apply with respect to such property
insurance coverage.
(Emphasis supplied.)
First Industrial counterclaimed for breach of contract. Both parties moved
for summary judgment. Both motions were denied by the then-presiding judge,
who decided that ambiguities in the lease required a trial.
A different judge oversaw the subsequent jury trial. Michelin took the
position that it had negotiated language in Section 9.2—“Landlord shall notify
Tenant of the amount of such Insurance Costs . . . ”—so that it could know the
amount of the deductible on the policy First Industrial had purchased and
intelligently decide whether to exercise its “Tenant’s Insurance Election” to
procure its own coverage. As Michelin protested, its concern had been merely to
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obtain insurance with the best combination of deductible and cost. During
negotiations, it was amenable to permitting First Industrial to be the party that
carried insurance on the warehouse so long as the landlord could obtain a better
value. Otherwise, it wanted to secure its own insurance contract. So when First
Industrial presented a $1.3 million bill, Michelin claimed to have been blindsided,
both because it had been led by First National’s representations to believe that
deductible costs would be much lower and because it had no prior warning during
the years in which the lease was in effect that First Industrial’s policy included a
deductible of that magnitude.
Michelin offered evidence of the course of negotiations and other extrinsic
proof. In the end, the jury returned a verdict in favor of Michelin. It decided that
the parties’ agreement required First National to give notice of policy deductibles
for each “Lease Year” regardless of whether deductibles had been paid due to a
claimed loss.
First Industrial responded to the jury’s findings with a motion for judgment
notwithstanding the verdict. It made two separate arguments. First, it contended
that the lease unambiguously did not require notice of a deductible unless such a
deductible was actually paid; therefore, it was entitled to judgment as a matter of
law. In the alternative, it argued that the evidence was insufficient to support the
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jury’s findings. The trial court entered a JNOV but did not explain the grounds of
its decision. Michelin has since brought this appeal.
Analysis
As the trial court did not explain the basis of its ruling, Michelin’s brief
addresses both the sufficiency of the evidence and the correct legal interpretation
of the contract. Michelin also contends that if the contract is indeed unequivocal,
then it favors Michelin. We conclude that the text of the lease unmistakably
supports First Industrial’s interpretation, and thus we need not address the
sufficiency of the evidence.
This appeal arises from a grant of JNOV. See TEX. R. CIV. P. 301. There are
two valid reasons for judgment as a matter of law after a jury verdict. Spencer v.
Eagle Star Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994); Fazio v. Cypress/GR
Hous. I, L.P., 403 S.W.3d 390, 394 (Tex. App.—Houston [1st Dist.] 2013, pet.
denied). The first is that the jury’s findings are actually immaterial to resolution of
the controversy before the court. Spencer, 876 S.W.2d at 157. For example, if a
trial court decides that a written contract is unambiguous, then it should give the
contract its plain meaning as a matter of law; this circumstance leaves the jury’s
findings of fact as to the parties’ true intent irrelevant to the outcome of the case.
When a motion for JNOV is thus granted based on a legal principle, it is reviewed
de novo. JSC Neftegas–Impex v. Citibank, N.A., 365 S.W.3d 387, 396 (Tex.
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App.—Houston [1st Dist.] 2011, no pet.). The second reason JNOV may be
appropriate is that the evidence is insufficient to support the jury’s verdict.
Spencer, 876 S.W.2d at 157. A JNOV granted on those grounds is reviewed for
“no evidence,” or for “legal sufficiency.” See Wal-Mart Stores, Inc. v. Miller, 102
S.W.3d 706, 709 (Tex. 2003) (per curiam).
If a written contract has a definite legal meaning, then a court should read
the text and construe it as a matter of law without help from a jury. Frost Nat’l
Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam);
Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). When the words on the page
suffice, a court should not look outside the document to decide what the parties
agreed. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). The
overriding objective is to “ascertain and give effect to the parties’ intentions as
expressed in the document.” Frost Bank, 165 S.W.3d at 311–12.
However, if a contract is ambiguous, the court should accept parol evidence
and can empanel a jury to decide, as an issue of fact, the “true intent of the
parties.” Coker, 650 S.W.2d at 394–95. A contract is ambiguous if it is open to
more than one reasonable reading. Frost Bank, 165 S.W.3d at 312. Deciding
whether a contract is ambiguous is itself an issue of law for the court. Webster, 128
S.W.3d at 229.
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To determine whether a contract is ambiguous, courts apply standard rules
of interpretation. Frost Bank, 166 S.W.3d at 312. These rules require an attempt to
harmonize the contract as a whole. Id. An ideal harmonization will not treat any
clause as a nullity, and courts generally presume that every provision was intended
to have some effect. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121
(Tex. 1996). Words should be given their ordinary meaning unless it appears from
context that they were used in a technical or different sense. Id. Courts should
interpret contracts from a utilitarian perspective, keeping in mind the parties’
business objectives. Frost Bank, 165 S.W.3d at 312. Absurd, inequitable, or
oppressive interpretations are to be eschewed unless they prove unavoidable. Id.
The lease did not include any express language requiring First Industrial to
notify Michelin of the size of the deductibles on the policy it carried for the
warehouse. Paragraph 9.2 provided two alternative methods by which the landlord
could bill the tenant for “Insurance Costs.” Under one method, the landlord could
notify the tenant of the amount of Insurance Costs for the Lease Year, and the
tenant would be obligated to pay the Insurance Costs in twelve monthly payments
over the course of that Lease Year. First Industrial did not exercise this option.
Instead, as permitted by the lease, it elected to “bill Tenant annually” for the
Insurance Costs.
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The lease defines “Insurance Costs” to include “all market based
premiums . . . and all commercially reasonable deductibles paid by Landlord
pursuant to insurance policies required to be maintained by landlord under this
Lease.” Because Michelin disputes the inclusion of deductibles as part of the
“Insurance Costs” that it owes, the critical word for purposes of this dispute is
“paid.” If the prior year did not feature a claimed loss, then there would be no
deductible to pay and the Insurance Costs would include only the amount of the
premiums plus reasonable administrative costs. In sum, Paragraph 9.2 explains
how First Industrial would invoice Michelin for all the costs related to insuring the
property in Michelin’s stead. The “Insurance Costs” include any actual payments
that First Industrial made to satisfy a deductible.
Michelin contends that a plausible reading of Paragraph 9.2 requires the
landlord to inform the tenant of the amount of the deductible on the policy
regardless of whether there has been a claimed loss. In other words, it asserts that
Paragraph 9.2 was both a notice provision and a billing provision. It presents two
arguments in support of its interpretation.
It first argues that it makes no sense to limit reporting to cases in which
deductibles are “paid,” because deductibles are never “paid.” A deductible,
Michelin observes, is merely an amount deducted from compensation provided by
an insurer. While Michelin is correct about the way deductibles shift costs under
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insurance policies, we do not agree that the idea of “paying” a deductible is
nonsense. A deductible is “the portion of the loss to be borne by the insured before
the insurer becomes liable for payment.” BLACK’S LAW DICTIONARY 422 (9th ed.
2009). If a policy holder chooses to repair or replace insured property, then it will
have to pay the amount of the deductible, “the amount of the loss specified in such
a clause.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 301 (10th ed. 1993).
This is what is commonly meant by “paying a deductible,” and it is a usage of
speech encountered in Texas case law. E.g., Fireman’s Fund Cnty. Mut. Ins. Co. v.
Hidi, 13 S.W.3d 767, 768 (Tex. 2000) (per curiam) (“[T]he claim was subject to a
deductible paid by the insured . . . .”); Phillips Petroleum Co. v. St. Paul Fire &
Marine Ins. Co., 113 S.W.3d 37, 42 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied) (reciting from an insurance company notice, “This change adds deductibles
to be paid by you.”); Jackson v. Gutierrez, 77 S.W.3d 898, 904 n.4 (Tex. App.—
Houston [14th Dist.] 2002, no pet.) (“Because appellee’s insurance paid for the
repairs, the parties’ dispute actually concerns only the $250 deductible appellee
paid as a result of the accident.”). Considering the foregoing, there is nothing
anomalous about including “deductibles paid” as an “Insurance Cost.”
Michelin’s second argument is that interpreting the lease to require advance
reporting of the amount of the policy deductible is necessary to avoid making the
provision for the Tenant’s Insurance Election irrelevant. Michelin contends that it
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could not make an informed decision as to whether it should purchase its own
coverage if it did not know the quality of coverage that First Industrial was
obtaining. But Michelin does not explain why it could not simply inquire about the
terms of the policy if it wished to investigate its options in this regard. It did not
have to wait for a yearly report to make such inquiries. Michelin could also make
use of the election after a loss brought an unhappily high deductible charge from
First Industrial. For both these reasons, our reading of the contract does not lead us
to agree that advance reporting of the deductible must be implied to make the
Tenant’s Insurance Election a meaningful right.
The lease unambiguously does not require First Industrial to give Michelin
advance notice of the amount of the policy’s deductible. See R & P Enters. v.
LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 519 (Tex. 1980) (“If a written
instrument is so worded that a court may properly give it a certain or definite legal
meaning or interpretation, it is not ambiguous.”). As the contract is unambiguous,
our determination of its meaning is a legal conclusion. See Frost Bank, 165 S.W.3d
at 312. The trial court correctly disregarded the jury’s findings and entered
judgment in favor of First Industrial.
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Conclusion
We affirm the judgment of the trial court.
Michael Massengale
Justice
Panel consists of Justices Keyes, Higley, and Massengale.
Justice Keyes concurring in the judgment only
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