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Davenport Chester, LLC v. Abrams Properties, Inc.

United States Court of Appeals, Eighth Circuit

September 5, 2017

Davenport Chester, LLC Plaintiff- Appellant
v.
Abrams Properties, Inc; SCIenergy, Inc. Defendants - Appellees

          Submitted: April 5, 2017

         Appeal from United States District Court for the Southern District of Iowa - Davenport

          Before WOLLMAN and LOKEN, Circuit Judges, and ROSSITER, [*] District Judge.

          LOKEN, Circuit Judge.

         This is an action by landlord Davenport Chester, LLC (Chester or Landlord), against tenant Abrams Properties, Inc. (Abrams or Tenant), for breach of a terminated lease agreement and waste under Iowa law, seeking as damages reasonable costs to repair the leased building, loss of fair market value caused by Tenant's waste, and expenses incurred to acquire adjacent land on which the building encroached. After Abrams removed the action, the district court[1] granted summary judgment dismissing Chester's claims, concluding that an Exculpation provision, Section 26.01 of the lease agreement, unambiguously limits Landlord's remedies to termination of the lease. Davenport Chester, LLC v. Abrams Props., Inc., 2015 WL 12866991, at *9-10 (S.D. Iowa Dec. 23, 2015). Landlord appeals, arguing the Exculpation provision as interpreted by the district court is ambiguous, conflicts with other lease provisions, and should be disregarded. Under Iowa law, "an alleged ambiguity in the provisions of a lease [is] generally resolved as a matter of law, " so our review is de novo. Walsh v. Nelson, 622 N.W.2d 499, 502 (Iowa 2001). We affirm.

         I.

         In April 1977, Abrams entered into an agreement with S. S. Kresge Company to construct a K-Mart store on Abrams' land in Davenport, Iowa; lease the store to K-Mart for twenty-five years from the date of K-Mart's occupancy; and manage the store for tenant K-Mart. Chester's predecessor in interest purchased the land and building from Abrams in August 1977. Chester and Abrams entered into a twenty-five-year lease agreement on November 16, 1977, the date that K-Mart's term of occupancy began. Under the three-tiered arrangement, Abrams, as Chester's tenant, managed the store for Operating Tenant K-Mart, collected rent from K-Mart, and held the rent in trust for landlord Chester. Abrams received $255, 308 in annual rent from K-Mart, plus an additional amount if store sales exceeded a threshold. Abrams paid property taxes, insurance, and maintenance costs, and paid $204, 405 in annual rent to Chester, plus twenty-five percent of any additional rent received from K-Mart.

          The parties twice extended their relationship for five-year renewal periods, extending the Chester-Abrams lease agreement until November 30, 2012. K-Mart closed the store in early 2012 and did not renew its sublease for another period. When Abrams failed to pay the June 2012 rent, Chester terminated the lease effective September 12, 2012. Chester retook possession of the property, and its inspector determined that the former K-Mart store needed repairs that would cost more than two million dollars. Chester asserted that the lease agreement obligated Abrams to pay for these repairs. In selling the property to a third party, Chester discovered that Abrams had built the store at least five feet outside the property line. Chester purchased that parcel to remove a cloud on the title and close the sale.

         Whether Abrams must pay Chester damages to repair the store premises and to acquire the adjacent parcel is the principal issue in this lawsuit. The district court did not decide whether Abrams breached the lease agreement because it concluded that Chester exercised its only remedy for the alleged breaches when it terminated the lease. This remedy issue turns primarily on proper interpretation of the following provisions in the forty-five-page lease agreement:

Section 6.01 - The Landlord shall not be required to furnish any services or . . . make any repairs or alternations . . . throughout the term of this Lease, the Tenant hereby assuming the full and sole responsibility for the condition, renovation, operating, repair, replacement, maintenance and management of the Demised Premises.
Section 6.04 - The Tenant shall . . . maintain and keep the said Demised Premises and the parking lots and driveways in firstclass order, repair and condition.
Section 6.06 - The Tenant will not do or permit or suffer any waste . . . to or upon the Demised Premises or any part thereof.
Section 13.01 - If Tenant shall default in the observance or performance of any term or covenant . . . Landlord . . . may remedy such default for the account and at the expense of Tenant . . . . [S]uch sums paid or obligations incurred . . . shall be deemed to be additional rent hereunder and shall be paid to [Landlord] by Tenant.
Section 26.01 - Tenant shall have no personal liability for the performance of the obligations of Tenant hereunder, and in the event of a default by Tenant in the performance of its obligations, the sole remedy of ...

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