Tetra Technologies Inc. v. Louisiana Fruit Co. , 252 F. App'x 639 ( 2007 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 26, 2007
No. 07-30296 Charles R. Fulbruge III
Summary Calendar Clerk
TETRA TECHNOLOGIES INC
Plaintiff-Appellant
v.
LOUISIANA FRUIT COMPANY
Defendant-Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana, New Orleans
USDC No. 2:06-cv-3736
Before JOLLY, DENNIS, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant TETRA Technologies, Inc. (“TETRA”) appeals from the
district court’s dismissal of its declaratory judgment action against
Defendant-Appellee Louisiana Fruit Company (“LA Fruit”) for failure to state
a claim. Specifically, TETRA, the lessee of land, seeks to terminate the lease
and avoid responsibility for repairing a defective bulkhead on the leased
premises. For the reasons that follow, we AFFIRM.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-30296
I. FACTUAL AND PROCEDURAL BACKGROUND
This appeal involves a lease for land that LA Fruit owns on Tiger Pass in
Venice, Louisiana. LA Fruit initially leased this land to International Drilling
Fluids, Inc. (“IDF”) in 1984. The original term of the lease was for five years,
with four five-year renewal options. The land was vacant when the parties
executed the lease. Thereafter, IDF built several structures on the land,
including an improved dock and drilling mud production facility. Pursuant to
the lease terms, IDF also built a six hundred foot bulkhead along the property.1
The lease states that “[a]ny and all buildings, and other structures erected by
LESSEE shall be and remain the property of LESSEE, and LESSEE shall have
the right to remove same (except bulkhead, fill, foundation and cement
slabs) . . . .” The lease further stipulates that “[a]ny deterioration or failure of
the bulkhead during the term of this lease shall be immediately repaired by
LESSEE at its sole cost and expense.”
In 1992, IDF assigned the lease to TETRA. The Assignment noted that
IDF had made improvements to the land and transferred all of IDF’s “rights,
title and interest in and to the Original Lease, together with all of [IDF’s]
interests in and to any buildings, improvements, fixtures and component parts”
on the property. IDF transferred its ownership interest in the buildings and
improvements “as is, where is.” TETRA agreed to “assume[] the obligations of
[IDF] under the Lease.”
In March 2005, TETRA obtained an evaluation of the bulkhead’s condition
from Infinity Engineering Consultants, LLC (“Infinity”). The Infinity report
stated that “[w]e understand that, over the last several years, TETRA has
noticed that the bulkhead is being subjected to adverse environmental conditions
1
A “bulkhead” is a “wall or embankment, as in a mine or along a waterfront, that acts
as a protective barrier.” THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 251
(3d ed. 1996).
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and appears to be in the process of failing.” Infinity confirmed TETRA’s
observations and recommended that TETRA repair and replace parts of the
bulkhead.
On August 29, 2005, Hurricane Katrina destroyed the buildings and
improvements on the property.2 Based on this damage, TETRA decided
unilaterally to terminate the lease as of August 30, 2005. TETRA stated that it
terminated the lease pursuant to Louisiana law, which allows a lessee to
terminate a lease when the leased property is partially destroyed or
substantially impaired.
TETRA filed this declaratory judgment action on July 13, 2006, seeking
a declaration that Louisiana law provided authority for TETRA to terminate the
lease and that any responsibility to repair the bulkhead rests with LA Fruit. LA
Fruit filed a motion to dismiss on September 1, 2006, for failure to join IDF as
an indispensable party, lack of subject matter jurisdiction because joining IDF
would defeat diversity, and failure to state a claim. On January 5, 2007, the
district court rejected LA Fruit’s joinder and diversity arguments but granted
LA Fruit’s motion to dismiss for failure to state a claim. TETRA appeals. We
have jurisdiction over the district court’s final judgment dismissing this case
pursuant to 28 U.S.C. § 1291.
II. ANALYSIS
A. Louisiana Law Does Not Permit the Termination of this Lease
1. Standard of Review
We review a district court’s dismissal for failure to state a claim de novo.
Kaltenbach v. Richards, 464 F.3d 524, 526 (5th Cir. 2006). We must accept the
plaintiff’s factual allegations as true. Apani Sw., Inc. v. Coca-Cola Enter., Inc.,
2
Hurricane Katrina apparently did not destroy the bulkhead. Any additional damage
that Hurricane Katrina caused is irrelevant given that the bulkhead already needed repair
before the hurricane. Additionally, TETRA’s argument regarding who has responsibility for
repairing the bulkhead rests on the premise that it was previously failing.
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300 F.3d 620, 624 (5th Cir. 2002). Further, we will not affirm a Rule 12(b)(6)
dismissal “unless it appears beyond doubt that the plaintiff can prove no set of
facts in support of his claim which would entitle him to relief.” Conley v. Gibson,
355 U.S. 41, 45-46 (1957). Because this case is in federal court based on
diversity jurisdiction, we must follow Louisiana’s substantive law. See Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938); Ashland Chem. Inc. v. Barco Inc., 123
F.3d 261, 265 (5th Cir. 1997).
2. Discussion
TETRA argues that Article 2715 of the Louisiana Civil Code allows
termination of the lease. That statute, entitled “Partial destruction, loss,
expropriation, or other substantial impairment of use,” provides,
If, without the fault of the lessee, the thing is partially
destroyed, lost, or expropriated, or its use is otherwise substantially
impaired, the lessee may, according to the circumstances of both
parties, obtain a diminution of the rent or dissolution of the lease,
whichever is more appropriate under the circumstances. If the
lessor was at fault, the lessee may also demand damages.
If the impairment of the use of the leased thing was caused by
circumstances external to the leased thing, the lessee is entitled to
a dissolution of the lease, but is not entitled to diminution of the
rent.
LA. CIV. CODE ANN. art. 2715 (2005). TETRA argues that the second part of this
statute applies and allows TETRA to dissolve the lease because Hurricane
Katrina, an external circumstance, caused an impairment in the use of the
“leased thing.” LA Fruit responds that this provision does not apply because the
“leased thing” includes only the ground and not the buildings or other
improvements. TETRA concedes that Hurricane Katrina did not destroy the
ground. Therefore, Article 2715 applies only if the lease includes the buildings
and improvements that Hurricane Katrina destroyed.
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No. 07-30296
A lease is a contract that is subject to ordinary contract interpretation.
Solo Serve Corp. v. Westowne Assoc., 929 F.2d 160, 164 (5th Cir. 1991) (citing
Thomas v. Knight, 457 So. 2d 1207, 1209 (La. Ct. App. 1984)). “Under Louisiana
law, when a contract is subject to interpretation from the four corners of the
instrument, without necessity of extrinsic evidence, interpretation of the
contract is a matter of law subject to de novo review.” Rutgers, State Univ. v.
Martin Woodlands Gas Co., 974 F.2d 659, 661 (5th Cir. 1992); see also LA. CIV.
CODE ANN. art. 2046 (2005) (“When the words of a contract are clear and explicit
and lead to no absurd consequences, no further interpretation may be made in
search of the parties’ intent.”). The district court interpreted the clear language
in the four corners of the contract to constitute a “ground lease” that did not
include the structures and improvements that IDF erected and Hurricane
Katrina destroyed.
The lease between LA Fruit and IDF was for the property listed in Exhibit
A. Exhibit A defines the leased premises as “[a] certain piece or portion of
ground, together with all the buildings and improvements thereon . . . .” The
lease further provides that “[a]ny and all buildings, and other structures erected
by LESSEE shall be and remain the property of LESSEE . . . .” According to the
four corners of the lease, therefore, LA Fruit leased the ground and any
buildings or improvements thereon at the time of the lease’s execution, and any
additional buildings or improvements that IDF erected remained the property
of IDF during the lease. IDF then transferred its interests in these buildings
and improvements to TETRA. The Assignment provides that “[TETRA] wishes
to accept such transfer of the interests of [IDF] in and to the Original Lease,
together with all of Assignor’s interests in and to any buildings, improvements,
fixtures and component parts located on the Leased Premised [sic].” Thus, based
on the plain language in the lease and Assignment, the district court correctly
determined that this lease was a “ground lease.” Cf. Schwegmann Family Trust
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No. 07-30296
No. 2 v. KFC Nat’l Mgmt. Co., Nos. 06-2447 and 06-2530, 2007 WL 60971, at *4
(E.D. La. Jan. 5, 2007) (holding that Hurricane Katrina did not destroy the
“thing leased” because “the land[] is suitable to operate a retail business and [is]
free of vices or defects that would prevent its use for that purpose”); West v.
Brown, 131 So. 2d 306, 308 (La. Ct. App. 1961) (noting that after a fire destroyed
the buildings on the leased premises, “the defendants now have what they
leased—a vacant lot—and, therefore, the articles of the Civil Code relied upon
have no application to the controversy at hand”).
This interpretation of the lease also comports with the general definition
of a “ground lease”:
A ground lease is generally a long-term lease (for a term of seldom
less than 35 and up to 99 years) of land in which the lessee is
obligated to make improvements on the land. The improvements
are owned or become owned by the lessee, although their ownership
often reverts to the lessor at the end of the lease. . . . In a ground
lease, the partial or even total destruction of the buildings on the
property ordinarily do not terminate the lease . . . .
PETER S. TITLE, LA. PRACTICE SERIES: LA. REAL ESTATE TRANSACTIONS § 18.33
(2006); see also Myers v. Burger King Corp., 638 So. 2d 369, 375 (La. Ct. App.
1994) (noting that the lessor of a “ground lease” did not also own the building on
the premises). Although this lease does not require the original lessee, IDF, to
make improvements on the land, the parties contemplated that IDF would erect
structures for its business purposes. Further, the lease stipulates that the lessee
owns the buildings and improvements, even allowing the lessee to remove these
structures when the lease ends.3 In sum, LA Fruit leased only the ground to
IDF, and IDF transferred its ownership interest in the additional buildings and
improvements to TETRA. Therefore, because Hurricane Katrina did not
3
The lease provides that the lessee can remove any and all buildings that the lessee
erects except the “bulkhead, fill, foundation, and cement slabs.”
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No. 07-30296
substantially impair the use of the “leased thing,” Article 2715 does not apply.
The district court correctly concluded that TETRA cannot prove any facts that
allow it to terminate the lease under Article 2715 and properly dismissed this
claim under Federal Rule of Civil Procedure 12(b)(6).
B. LA Fruit is Not Obligated to Pay for the Cost of Restoring the
Bulkhead
TETRA also argues that LA Fruit is responsible for restoring the damaged
bulkhead because the damage is the result of a design or construction defect that
predated TETRA’s occupancy of the premises. The plain language in the four
corners of the lease, however, does not support TETRA’s argument. See Rutgers,
State Univ., 974 F.2d at 661. The lease provides that “[a]ny deterioration or
failure of the bulkhead during the term of this lease shall be immediately
repaired by LESSEE at its sole cost and expense.” That is, IDF originally bore
responsibility for repairing the bulkhead. When IDF assigned its interest in the
lease to TETRA, TETRA agreed to assume all of IDF’s responsibilities. Thus,
the plain language of the lease stipulates that IDF owned and agreed to repair
the bulkhead during the lease term, and the plain language of the Assignment
provides that IDF transferred this ownership interest and obligation to repair
to TETRA.4
TETRA’s remaining argument is that Articles 2684 and 2696 of the
Louisiana Civil Code obligate LA Fruit to repair the bulkhead. Article 2684
provides that “[t]he lessor is bound to deliver the thing at the agreed time and
in good condition suitable for the purpose for which it was leased.” LA. CIV.
4
Although the Assignment states that nothing in the Assignment “shall be construed
or interpreted to constitute a modification of [LA Fruit’s] ownership interests under the Lease,
including its ownership interests of the bulkhead constructed by [IDF],” this provision is
inapplicable because LA Fruit does not own the bulkhead during the lease. The lease provides
that the lessee, not the lessor, owns the buildings and improvements during the lease. LA
Fruit’s ownership interest in the bulkhead begins only when the lease terminates and the
lessee must leave behind the “bulkhead, fill, foundation, and cement slabs.”
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CODE ANN. art. 2684 (2005). Article 2696 provides a warranty against “vices or
defects” and states that “[t]his warranty also extends to vices or defects that
arise after the delivery of the thing and are not attributable to the fault of the
lessee.” Id. § 2696. TETRA argues that LA Fruit did not deliver the “thing,” or
bulkhead, without vices or defects. This argument is unavailing, however,
because the lease does not include the bulkhead. As discussed above, the lease
is a “ground lease” for the ground only and not also for the buildings or
improvements on the land. The bulkhead is not part of the leased “thing.”
Therefore, these statutes do not apply. See West, 131 So. 2d at 308.
Even if the lease did cover the bulkhead, however, the warranty statutes
still are inapplicable. The Louisiana Supreme Court has stated that
the codal articles and statutes defining the rights and obliations
[sic] of lessors and lessees are not prohibitory laws which are
unalterable by contractual agreement, but are simply intended to
regulate the relationship between lessor and lessee when there is no
contractual stipulation imposed in the lease. . . . Our jurisprudence
is that the usual warranties and obligations imposed under the
codal articles and statutes dealing with lease may be waived or
otherwise provided for by contractual agreement of the parties as
long as such waiver or renunciation does not affect the rights of
others and is not contrary to the public good.
Tassin v. Slidell Mini-Storage, Inc., 396 So. 2d 1261, 1264 (La. 1981) (internal
citations omitted); cf. Cerniglia v. Napoli, 517 So. 2d 1209, 1211 (La. Ct. App.
1987) (holding that a statute allowing termination of a lease for total destruction
of the premises is inapplicable if the lease contains a clause providing for
reconstruction of the property and continuation of the lease). The lease here
provides that the lessee, first IDF and now TETRA, shall repair the bulkhead
during the lease. Further, IDF transferred the buildings and improvements to
TETRA “as is, where is.” Therefore, the parties contracted around any warranty
that the statute imposed with regard to the bulkhead, and TETRA has provided
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No. 07-30296
no evidence that this waiver affects the rights of others or is contrary to the
public good.
In sum, the district court correctly concluded that TETRA cannot prove
any facts that obligate LA Fruit to repair the bulkhead.
III. CONCLUSION
For the reasons stated above, we affirm the district court’s decision to
grant LA Fruit’s motion to dismiss for failure to state a claim.
AFFIRMED.
9