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Orgill, Inc. v. Distribution Centers of America (WV), LLC

United States District Court, N.D. West Virginia, Martinsburg

November 16, 2017

ORGILL, INC., Plaintiff,
v.
DISTRIBUTION CENTERS OF AMERICA (WV), LLC, Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

          GINA M. GROH, CHIEF UNITED STATES DISTRICT JUDGE

         Currently pending before the Court is the Plaintiff's Motion for Summary Judgment [ECF No. 154], the Defendant's Motion for Summary Judgment [ECF No. 162], and both parties' responses and replies to the respective motions. ECF No. 196, 194, 231 and 230. For the reasons stated herein, the Plaintiff's motion for summary judgment [ECF No. 154] is GRANTED on all issues.

         I. Background

         The Plaintiff in this case, Orgill, Inc. (“Orgill”), is a company engaged in the wholesale distribution of hardware home improvement products. ECF No. 154-2 at 14. In 1999, Orgill built a distribution center on real property located at 4925 Tabler Station Road, in Inwood, West Virginia (“Inwood Facility”). ECF No 162-5 at 1-2. Orgill subsequently sold that property in a “sale-leaseback” transaction to a California based entity, Sierra Crest Equities, LLC. ECF No. 154-2 at 28. Between 2004 and 2005, the Defendant, Distribution Centers of America (“DW”), began looking for financing to purchase the Inwood Facility. ECF No. 162-5 at 3. Ultimately, DW obtained a mortgage loan through Eurohypo Bank (“Eurohypo Loan”), and on April 21, 2005, DW acquired the Inwood Facility. Id. Pursuant to the sale and the lender's requirements, DW entered into an Amended and Restated Lease Agreement (“Amended Lease”) with Orgill. Id. The lease is dated April 15, 2005. Id. DW became the landlord under the new lease. Id.

         The parties operated under this lease without issue until May 2015, at which time, Orgill's base rent declined from $195, 341 to $178, 898 per month, and DW began collecting “management fees, ” as “Additional Rent” under the lease agreement. ECF No. 154-2 at 119. Orgill agreed to make the additional rent payments for the remainder of the year, in return for an amendment to the lease specifying the nature and extent of permissible “additional rent” charges going forward. ECF No. 154-4 at 133-36.

         However, in April 2016, DW renewed its demands for additional rent dating back to 2014 and continuing forward. Id. At that point, Orgill declined to pay and instituted the action before the Court seeking declaratory relief. Id. In its answer, DW alleged several counterclaims against Orgill for breach of contract. ECF No. 11 at 11.

         II. Standard of Review

         Summary judgment as to a given subject is appropriate under Federal Rule of Civil Procedure 56 when there is no genuine issue as to any material fact and the moving party is thus entitled to judgment in its favor as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of fact exists “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Therefore, the Court must conduct “the threshold inquiry of determining whether there is the need for a trial-whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.” Id. at 250.

         The party opposing summary judgment “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). That is, once the movant has met its burden to show an absence of disputed material facts, the party opposing summary judgment must then come forward with affidavits or other evidence demonstrating there is a genuine issue for trial. Fed.R.Civ.P. 56(c); Celotex, 477 U.S. at 323-35; Anderson, 477 U.S. at 248. “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249 (citations omitted).

         III. Applicable Law

         The Amended Lease contains a choice of law provision specifying that any disputes arising under the lease will be governed by West Virginia law. ECF No. 162-2 at 50. Under West Virginia law, a court must determine whether a contract is ambiguous before it attempts to interpret it. Whether a contract is ambiguous is a legal determination well suited for summary judgment. Payne v. Weston, 466 S.E.2d 161, 166 ( W.Va. 1995). A contract is ambiguous if it is “reasonably susceptible to two different meanings” or if “reasonable minds might be uncertain or disagree as to its meaning.” Id. (citing syl. Pt. 1, in part, Shamblin v. Nationwide Mut. Ins. Co., 332 S.E.2d 639 ( W.Va. 1985)). Contract language may also be considered ambiguous if “the agreement's terms are inconsistent on their face or where the phraseology can support reasonable differences of opinion as to the meanings of words employed and obligations undertaken.” In re Joseph G., 589 S.E.2d 507, 512 ( W.Va. 2003).

         Looking at all parts of the document together, if the court finds that the contract terms are clear and unambiguous, the contract is “not subject to judicial construction or interpretation, ” and “the Court will apply, not interpret, the plain and ordinary meaning.” Payne, 466 S.E.2d at 166 ( W.Va. 1995). However, if the court determines that the contract “cannot be given a certain and definite legal meaning” and “is therefore ambiguous, ” a question of fact may be submitted to the jury as to the meaning of the contract. Id. Specifically, a jury may be called upon to determine the intent of the parties through extrinsic evidence. Id. However, if the extrinsic evidence is not in dispute, “the duty remains with the court to construe the writing.” Stewart v. Blackwood Electric Steel Corporation, 130 S.E. 447, 449 ( W.Va. 1925); see also Lee Enterprises, Inc. v. Twentieth Century-Fox Film Corp., 303 S.E.2d 702 ( W.Va. 1983).

         Assuming the extrinsic evidence is not in dispute, the court may interpret the contract using extrinsic evidence to show “the situation of the parties, the surrounding circumstances when the writing was made, and the practical construction given to the contract by the parties themselves either contemporaneously or subsequently.” Lee Enterprises, Inc., 303 S.E.2d at 705 (internal citations omitted). The court may also use proof of usage or custom to interpret any ambiguity in the contract. Cotiga Development Co. v. United Fuel Gas Co., 128 S.E.2d 626, 635 ( W.Va. 1962) (internal citations omitted). Ultimately, the resolution will typically turn on the parties' intent at the time of contracting. Fraternal Order of Police, Lodge No. 69 v. City of Fairmont, 468 S.E.2d 712, 716 n.7 ( W.Va. 1996).

         IV. Discussion

         There are four claims raised in the parties' summary judgment motions. ECF No. 154 and 162. These include whether Orgill is liable to DW, under the terms of the lease, for: (1) additional rent in the form of direct and indirect property management fees (“Additional Rent”); (2) litigation expenses related to a lawsuit filed in California (“Novakovic Litigation”); (3) necessary repairs to the leased property (“Maintenance and Repairs”); and (4) failure to give notice of alterations to the leased property (“Alterations and Improvements”). Each claim will be discussed in turn.

         A. Additional Rent

         1. Background Information

         First, the parties dispute whether Orgill is liable to DW for direct and indirect management fees arising under the “Additional Rent, ” provision of the Amended Lease. Specifically, DW seeks to pass on to Orgill certain management fees that it incurs pursuant to its obligations under its loan. Under the Eurohypo Loan, DW was required to enter into a management agreement with respect to the Inwood Facility. ECF No. 160-3 at 39. In accordance with that obligation, DW entered into a management agreement with DCA Management Company, LLC (“DCA”). In 2006, DCA changed its name to Center Investors Group (“CIG”). ECF No. 154-2 at 102. DW paid DCA and CIG a management fee of 0.5% of “Gross Monthly Receipts derived from the operation of the Property, ” and additional fees if certain metrics were met. ECF No. 162-4 at 1. DW did not pass these fees through to Orgill, stating in this litigation that, “it just wasn't worth it.” ECF No. 154-2 at 119-20.

         In 2014, DW refinanced its loan with UBS Real Estate Securities, Inc. (“UBS Loan”). ECF No. 162-8. Pursuant to the UBS loan, DW engaged a separate management company, Center Real Estate Management, LLC (“CR”). ECF No. 162-9 at 5. Under that agreement, DW pays CR a fee equal to 3% of the gross revenue of the Inwood Facility to directly manage the Inwood Facility (“direct management fees”). Id. DW has attempted to pass on these “direct management fees” from CR since May of 2015.

         DW has also engaged the services of The Center Companies, LLC (“CE”) to provide services for DW including bookkeeping, financial reports, cash flow management, and monitoring of insurance claims and requirements. ECF No. 162-5 at 4. Because CE performs services for other DW affiliates, CE's direct and overhead costs are shared between all DW affiliates. 162-12 at 23. Since DW generates approximately 92.5% of all revenue generated among the affiliates, CE allocates 92.5% of its overhead costs to DW (“indirect management fees”). DW seeks to pass through these “indirect management fees” to Orgill.

         Orgill argues that the Additional Rent provision does not permit DW to charge these management fees. Specifically, Orgill argues that the Additional Rent provision is ambiguous, but that extrinsic evidence shows management fees are not contemplated under the provision. DW argues that the provision is “clear and unambiguous” and accordingly, the Court should give full effect to the plain meaning intended. However, if the Court finds that the “Additional Rent” provision is ambiguous, DW argues in the alternative that management fees are still recoverable.

         2. Analysis

         Pursuant to the well-established principles of contract law, the Court must first determine whether the contract provision at issue is ambiguous. While DW urges the Court to find that the contract is not ambiguous, looking at the document as a whole, it is unclear whether ...


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