Chipokas, L.L.C. v. Casey's Marketing Company ( 2020 )

IN THE COURT OF APPEALS OF IOWA
No. 18-2231
Filed January 9, 2020
CHIPOKAS, L.L.C.,
Plaintiff-Appellant,
vs.
CASEY'S MARKETING COMPANY,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Mitchell E. Turner,
Judge.
Chipokas, L.L.C. appeals from an adverse summary judgment ruling.
AFFIRMED.
Matthew L. Preston, Ann C. Gronlund, and David T. Meyers of Brady
Preston Gronlund PC, Cedar Rapids, for appellant.
Richard F. Mitvalsky and Thomas F. Ochs of Gray, Stefani, & Mitvalsky,
P.L.C., Cedar Rapids, for appellee.
Heard by Vaitheswaran, P.J., Mullins, J., and Gamble, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2020).
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GAMBLE, Senior Judge.
Chipokas, L.L.C. (Chipokas) appeals from the district court’s summary
judgment ruling in favor of Casey’s Marketing Company (Casey’s) interpreting the
terms of a lease. We affirm.
I. Facts and Prior Proceedings
Chipokas is the owner of a parcel of land known as Lot 1 on the corner of
Highway 13 and Mount Vernon Road in Linn County, Iowa. Chipokas divided Lot
1 into two adjoining parcels, Lot 1A for development and Lot 1B consisting of
undeveloped bare ground. In 2001, Chipokas entered into a transaction with
Nordstrom Oil Company (Nordstrom) comprised of two separate leases, the
convenience store lease (CSL) and the bare ground lease (BGL). The CSL
provided Chipokas would lease Lot 1A to Nordstrom for the construction of one of
Nordstrom’s HandiMart Food Stores. Under the BGL, Chipokas leased the
adjoining undeveloped ground, Lot 1B, to Nordstrom. The term of each lease ran
to June 30, 2012, and allowed Nordstrom to renew six times for five-year terms.
Section 4.1 of the CSL also contained the following renewal condition: “The
exercise of any renewal option hereunder shall require the exercise of the option
to renew the [BGL] as defined in Exhibit D attached hereto.”
In 2006, Casey’s and Nordstrom entered into an asset purchase agreement
for thirty-three HandiMart stores, including the store located on the CSL land. The
asset purchase agreement specifically stated Lot 1B, the subject of Nordstrom’s
BGL, was excluded from the assets Casey’s acquired from Nordstrom. Nordstrom
entered into an assignment and assumption of the CSL with Casey’s. Casey’s did
not take an assignment of the BGL. Chipokas consented to the assignment of the
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CSL to Casey’s. Chipokas had no discussions with Nordstrom about the
assignment of the CSL. There were no discussions concerning the BGL.
Nordstrom remained the lessee to the BGL.
In 2012, Casey’s informed Chipokas it wished to exercise its option to renew
the CSL. Casey’s clarified it had no desire to lease the BGL land and believed it
had no right to exercise an option within the CSL to lease the BGL. Nordstrom did
not renew the BGL when it expired in 2012, and it dissolved at the end of 2012.
Ultimately, Chipokas permitted Casey’s to renew the CSL without also entering
into the BGL in 2012.
In 2016, Casey’s again informed Chipokas it wished to exercise its option
to renew the CSL. It did not express any intention to lease the BGL land. In 2017,
Chipokas brought the instant action for breach of contract and declaratory
judgment claiming Casey’s was obligated to renew the BGL upon renewal of the
CSL.
Both Casey’s and Chipokas sought summary judgment in their favor. The
district court initially denied both motions. However, after Casey’s clarified no
additional facts would be disclosed at trial, the district court granted summary
judgment in favor of Casey’s. The district court ruled:
The court finds on the record before it, with no resistance from [Chipokas],
that there was no conversation between Chipokas and Casey’s in 2006
regarding the expectation of whether Casey’s or [Nordstrom] or neither
would be responsible for the lease of plot 1B. Based on the court’s
interpretation of the contract language, as previously discussed in the order
denying summary judgment, the court finds that BGL and the CSL were
separated at the time that Casey’s took by assignment from Nordstrom. At
that point, Casey’s had no obligation to renew the BGL over plot 1B as they
had never exercised control over that plot, nor so intended. The court finds
on the basis of the record before it, taken as complete, summary judgment
in favor of the defendant, Casey’s, is appropriate.
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Chipokas moved the court to enlarge and amend its order granting summary
judgment. In response, the district court provided additional analysis supporting
its summary judgment ruling in favor of Casey’s.
Chipokas now appeals.
II. Standard of Review
We review a grant of summary judgment for correction of errors at law. See
Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000). Summary
judgment is appropriate “if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Iowa R. Civ. P. 1.981(3). “Summary judgment is
proper if the only issue is the legal consequences flowing from undisputed facts.”
Johnson v. Associated Milk Producers, Inc., 886 N.W.2d 384, 389 (Iowa 2016)
(citation omitted). “In assessing whether summary judgment is warranted, we view
the entire record in a light most favorable to the nonmoving party.” Crippen, 618
N.W.2d at 565.
III. Discussion
On appeal, Chipokas argues the district court erred in granting summary
judgment in favor of Casey’s. It contends Casey’s breached the CSL by not
entering into the BGL upon renewal of the CSL and asks this court to reverse the
district court’s judgment and remand to the district court with instructions to grant
summary judgment in its favor.
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A. General Principles of Contracts
We begin our review by acknowledging a lease is a contract subject to
ordinary contract principles. Alta Vista Props., LLC v. Mauer Vision Ctr., PC, 855
N.W.2d 722, 727 (Iowa 2014). Our law governing the interpretation and
construction of contracts is well established. We are mindful that “[a] writing is
interpreted as a whole, and all writings that are part of the same transaction are
interpreted together.” Jeffries v. Gen. Cas. Ins. Cos., No. 14-0032, 2015 WL
1046170, at *2 (Iowa Ct. App. Mar. 11, 2015) (quoting Restatement (Second) of
Contracts § 202 (Am. Law Inst. 1981)). “Generally, when we interpret contracts,
we look to the language contained within the four corners of the document.”
DuTrac Cmty. Credit Union v. Radiology Grp. Real Estate, L.C., 891 N.W.2d 210,
216 (Iowa 2017). “If a contract is not ambiguous, it will be enforced as written.”
Thornton v. Hubill, Inc., 571 N.W.2d 30, 33 (Iowa Ct. App. 1997) (citing Spilman v.
Bd. of Dirs., 253 N.W.2d 593, 596 (Iowa 1977)).
“In the construction of written contracts, the cardinal principle is that the
intent of the parties must control, and except in cases of ambiguity, this is
determined by what the contract itself says.” Iowa R. App. P. 6.904(3)(n); Peak v.
Adams, 799 N.W.2d 535, 543 (Iowa 2011). Generally, “[t]he construction or legal
effect of a contract is always a matter of law to be decided by the court, as is the
interpretation or meaning of contractual words unless it depends on extrinsic
evidence or a choice among reasonable inferences from extrinsic evidence.”
Campbell v. Mid-Am. Constr. Co. of Iowa, 567 N.W.2d 667, 669–70 (Iowa Ct. App.
1997). “Our task is to determine the intent of the parties as evidenced by the
language of their agreement[s]” and to enforce the agreements as written. See
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Thornton, 571 N.W.2d at 33. “It is not our task to go beyond the plain language of
the agreements to construe them to mean something the parties wish they would
have said in hindsight.” Lucy v. Platinum Servs., Inc., No.17-1118, 2018 WL
5840801, at *3 (Iowa Ct. App. Nov. 7, 2018). Here, the parties agree no extrinsic
evidence is necessary to interpret the CSL, and we agree. We will interpret the
CSL as a matter of law.
B. Nordstrom’s Assignment of Rights and Delegation of Duties to
Casey’s
The district court found and the parties agree that, as of the original signing
of both the CSL and BGL between Nordstrom and Chipokas and prior to the
assignment of the CSL by Nordstrom to Casey’s, there is no reason to understand
that the parties intended anything other than Nordstrom would renew the BGL if it
renewed the CSL. Had Nordstrom assigned both the CSL and the BGL to Casey’s,
there is no question Casey’s would have the obligation to renew the BGL if it
renewed the CSL. But Nordstrom only assigned the CSL to Casey’s. It did not
assign the BGL. Since Nordstrom retained the BGL, the issue is whether Casey’s
had the obligation to renew the BGL when it renewed the CSL.
Paragraph two of the assignment agreement provides, “Assignee [Casey’s]
hereby assumes all of the obligations of the Assignor [Nordstrom] as Lessee under
the Lease [CSL] arising on and after the Effective Time.” Chipokas argues this
was an assignment of Nordstrom’s rights to Casey’s and a delegation of
Nordstrom’s duties to Casey’s. See Midland Mut. Life Ins. Co. v. Mercy Clinics,
Inc., 579 N.W.2d 823, 833 (Iowa 1998); Restatement (Second) of Contracts
§ 328(1) (Am. Law Inst. 1981). Chipokas reasons that under the assignment,
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Casey’s stood in the shoes of Nordstrom and was delegated the duty by Nordstrom
to renew the BGL upon Casey’s renewal of the CSL. Chipokas argues when
Casey’s renewed the CSL in 2012, section 4.1 of the CSL required Casey’s to do
as Nordstrom would be required to do and renew the BGL regardless of the fact
there was no discussion of the BGL when Casey’s took the assignment of the CSL.
See Pickler v. Mershon, 236 N.W. 382, 385 (Iowa 1931) (“Where the lessee, in a
written lease of land, assigns the lease to another, who accepts in writing the
assignment, the latter executes a contract in writing, binding him to perform the
conditions of the lease though in the writing there may be no mention of the
obligations assumed.”).
However, Chipokas’s analysis ignores the basic reality that Nordstrom did
not assign the BGL to Casey’s and Casey’s never occupied the bare ground. An
obligation only accrues with respect to unoccupied property through a delegation
of duties when the instrument assigning rights and delegating duties specifically
provides for the obligation to the unoccupied property with certainty. See Corsiglia
v. Summit Ctr. Corp., 348 N.W.2d 647, 650 (Iowa Ct. App. 1984). Here, the asset
purchase agreement between Nordstrom and Casey’s specifically excluded the
BGL. Nordstrom’s assignment agreement with Casey’s did not provide that
Casey’s would be obligated to lease the bare ground upon renewal of the CSL.
Because the assignment agreement does not provide “lucid and unambiguous
language” providing that Casey’s would lease the bare ground if it decided to
renew the CSL, we do not interpret the agreement to bind Casey’s in such a
manner. See id.8
Recognizing that Nordstrom remained the lessee under the BGL, Chipokas
claims if Nordstrom did not exercise its right to renew under the BGL, Casey’s had
the duty to do so under the CSL. However, Chipokas incorrectly views the CSL
and BGL as one agreement. The CSL and BGL are separate and distinct lease
contracts. We recognize the delegation of duties under one lease does not apply
to the other lease. See Midland Mut. Life Ins. Co., 579 N.W.2d at 834 (“The lease
agreement and expansion agreement were two separate and distinct contracts.
Therefore, we find that even if the assignment of rents could be construed as a
delegation of duties as well, that delegation would not apply to the duties
established between the parties in the expansion agreement.”). Nordstrom only
assigned the CSL to Casey’s. It did not assign the BGL. Nordstrom did not
delegate the obligation to renew the BGL to Casey’s. It retained the right to renew
the BGL for itself. Accordingly, any obligations delegated to Casey’s by Nordstrom
in the assignment of the CSL do not create obligations under the BGL because the
BGL is a separate contract. See id. When Casey’s stood in the shoes of
Nordstrom as the lessee of the CSL and Nordstrom continued as lessee of the
BGL without a concurrent assignment of the BGL to Casey’s, Casey’s assumed
the obligation to lease the convenience store, while Nordstrom retained the
obligation to lease the bare ground under the BGL. When both leases came up
for renewal in 2012, the right of renewal of the CSL rested with Casey’s pursuant
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to the assignment while the right of renewal of the BGL was retained by Nordstrom
pursuant to the terms of the BGL.1
C. Exhibit D of the CSL
Rather than the express language of the assignment agreement, Chipokas
looks to the language of the CSL to support its claim. Chipokas claims section 4.1
of the CSL required Casey’s to perform Nordstrom’s obligation to renew the BGL.
However, Casey’s obligations under section 4.1 extend only so far as the terms of
section 4.1 require. Section 4.1 provides:
Lessee shall have six options to renew this Lease for a period of five
(5) years for each such option, known as an “option term.” Not less
than one hundred fifty (150) days prior to the end of the Primary Term
and any option term, Lessee shall deliver written notice to Lessor that
Lessee intends to renew the Lease for the applicable option term.
The exercise of any renewal option hereunder shall require the
exercise of the option to renew the [BGL] as defined in Exhibit D
attached hereto.
Our attention is drawn to the last sentence in section 4.1: “The exercise of any
renewal option hereunder shall require the exercise of the option to renew the
[BGL] as defined in Exhibit D attached hereto.”
Yet exhibit D2 does not specifically define the option to renew the BGL. The
parties agree no extrinsic evidence is available to assist the court in interpreting
exhibit D. However, paragraph (e) of exhibit D states:
1 “Renew” is defined in the following ways: “to make new again”; “to restore to
existence”; “reestablish, re-create, rebuild”; “to go over again”; “make or do again”;
“repeat”; “to begin again”; “recommence, resume.” Renew, Webster’s Third New
International Dictionary (2002). Casey’s could not “make new again” or “restore to
existence” the BGL because there was no existing BGL to which Casey’s was a
party.
2 We consider the language of Exhibit D when interpreting the CSL because it is
incorporated by clear and specific reference in the CSL. See Longfellow v. Sayler,
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As stated in the Exchange Agreement between the Lessor and
[Nordstrom] dated July 31, 2001, if Lessee is leasing the remainder
of the Land not included in the Leased Premises, Lessee shall have
the right to increase the number of square feet included in the Leased
Premises by decreasing the number of square feet included in
adjacent premises (remainder of the Land) being leased by Lessee
from Lessor (“Bare Ground Lease”) resulting in a change in the
annual rental amount due hereunder according to the calculation to
be made under paragraph (b) of this Exhibit D; provided, however,
that there must be a corresponding and offsetting change in the
square feet of the Land included in the Bare Ground Lease and a
corresponding and offsetting change in the rent to be paid under the
Bare Ground Lease.
(Emphasis added.) The CSL provides “the Land” is Lot 1. “[T]he Leased
Premises” is Lot 1A. The land not included in “the Leased Premises” is Lot 1B.
The language “if Lessee is leasing the remainder of the Land not included in the
Leased Premises” (emphasis added) contemplated the possibility that the lessee
of the CSL may not be leasing the adjoining bare ground. This includes the
possibility that the assignee of the CSL and the lessee of the BGL may not be the
same entity. In other words, Exhibit D of the CSL recognizes the CSL may be
assigned to one entity and the BGL may be retained by another entity. Without
any extrinsic evidence to the contrary, the reference to Exhibit D in section 4.1 of
the CSL supports the conclusion that when the assignee of the CSL and the lessee
of the BGL are different entities, section 4.1 does not require the assignee of the
CSL to renew the BGL because it is not the lessee of the BGL.
737 N.W.2d 148, 154 (Iowa 2007) (“The doctrine of incorporation requires the
contract to make a clear and specific reference to an extrinsic document to
incorporate the document into the contract.”).
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D. Chipokas’s Consent to the Assignment
Chipokas laments section 11.1 of the CSL compelled its consent to the
assignment and assumption of lease agreement. Section 11.1 provides in
pertinent part:
With the prior written consent of the Lessor which shall not be
unreasonably withheld or delayed, Lessee may sublet all or any
portion of the Leased Premises or assign its interest under this
Lease, provided, however, that the Lessee shall nonetheless remain
fully liable for all its obligations under this Lease.
According to Chipokas, the terms of section 11.1 meant it could do nothing but
consent to the assignment. Yet section 11.1 did not bar Chipokas from withholding
its consent to the assignment for legitimate reasons.
Rather, the provision of section 11.1 prohibiting unreasonably withheld or
delayed consent still permitted Chipokas to withhold its consent when a reasonably
prudent person in its “position exercising reasonable commercial responsibility
[would have] a good faith and reasonable objection to assignment of the lease.”
See Van Sloun v. Agans Bros., Inc., 778 N.W. 174, 180 (Iowa 2010) (interpreting
the phrase “shall not be unreasonably withheld” with respect to an assignment
provision contained in a lease agreement). Instead, Chipokas chose not to make
reasonable inquires about the interplay between the CSL and the BGL before
consenting to the assignment.
Chipokas contends it would not have given up the operative effect of section
4.1, providing the exercise of any renewal option under the CSL shall also require
the exercise of the option to renew the BGL, if it had the opportunity to object.
However, if Chipokas wanted to be assured of Casey’s intent to renew the BGL, it
could have, in the exercise of reasonable commercial responsibility, withheld its
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consent to the assignment of the CSL unless Nordstrom also assigned the BGL to
Casey’s or until Nordstrom’s assignment of the CSL specifically provided with
certainty that Casey’s assumed the obligation to lease the bare ground if it
renewed the CSL. Chipokas chose not to do so.
Chipokas claims it would have demanded additional consideration to give
up the operative effect of section 4.1 and questions why it would be reasonable to
give up the operative effect of section 4.1 absent some consideration. But again,
it had an opportunity to withhold its consent and request additional consideration
and failed to do so. Moreover, we are not blind to the inherent value to Chipokas
to have Casey’s operate the convenience store rather than Nordstrom’s
HandiMart.
In the end, for whatever reason, Chipokas made the business judgment to
consent to the assignment of the CSL to Casey’s without inquiry into Casey’s
obligation to lease the adjoining bare ground. It cannot complain now about its
own failure to raise the issue before consenting to the assignment.
IV. Conclusion
Viewing the summary judgment record in a light most favorable to Chipokas,
we conclude Nordstrom only assigned the CSL to Casey’s. Because Casey’s was
not a party to the BGL, it did not have a right to renew the BGL. When Casey’s
exercised the renewal option in section 4.1 of the CSL, it could not be compelled
to renew the BGL because it had no right to do so. Nordstrom retained the right
to renew the BGL. The terms of section 4.1 remained unaltered, but it only had
operative effect when the lessee to the CSL and BGL were the same entity.
Chipokas failed to raise the issue of the BGL with Nordstrom and Casey’s before
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consenting to the assignment of the CSL. We affirm the district court’s summary
judgment ruling in favor of Casey’s.
AFFIRMED.