Opinion
A22-1057
02-27-2023
Fitness International, LLC, Appellant, v. City Center Ventures, LLC, Respondent.
John C. Holper, Winthrop &Weinstine, P.A., Minneapolis, Minnesota; and A. Grant Phelan (pro hac vice), Klehr Harrison Harvey Branzburg LLP, Philadelphia, Pennsylvania (for appellant) John J. Steffenhagen, Brian N. Niemczyk, Hellmuth &Johnson, PLLC, Edina, Minnesota (for respondent)
This opinion is nonprecedential except as provided by Minn. R. Civ. App. P. 136.01, subd. 1(c).
Hennepin County District Court File No. 27-CV-21-3969
John C. Holper, Winthrop &Weinstine, P.A., Minneapolis, Minnesota; and
A. Grant Phelan (pro hac vice), Klehr Harrison Harvey Branzburg LLP, Philadelphia, Pennsylvania (for appellant)
John J. Steffenhagen, Brian N. Niemczyk, Hellmuth &Johnson, PLLC, Edina, Minnesota (for respondent)
Considered and decided by Bryan, Presiding Judge; Ross, Judge; and Larkin, Judge.
BRYAN, JUDGE
In this action to obtain a refund of rental payments, appellant tenant challenges the district court's decision to grant summary judgment in favor of landlord respondent. Appellant argues that this court should reverse the decision of the district court for the following three reasons: (1) respondent breached the lease covenants when the emergency executive orders of the State of Minnesota prohibited appellant from using the premises for certain purposes; (2) the doctrines of impossibility and impracticability, the force majeure clauses in the contract, and the frustration-of-purpose doctrine excused appellant's obligation to pay rent and justify return of the paid amounts; and (3) because of the provisions of the lease requiring respondent to pay interest on any late payments to appellant, respondent owes appellant interest on the late renovation contribution payment that respondent made to appellant pursuant to a subsequent agreement regarding renovation of the premises.
We affirm the district court's decision because undisputed facts establish that respondent did not breach the lease, none of appellant's asserted arguments based on affirmative defenses apply in this case, and the interest provisions of the lease do not apply to the payments made pursuant to the subsequent renovation agreement.
FACTS
Appellant Fitness International LLC (Fitness) owns and operates a chain of fitness centers throughout the United States and Canada. Respondent City Center Ventures LLC (City Center) is a Minnesota corporation that owns and acts as landlord of commercial real estate. In 2007, the parties entered into a retail lease agreement for a property (the premises) owned by City Center in Hopkins, Minnesota. The lease contains several provisions relevant to the arguments presented.
In section 1.9, City Center agreed that "[Fitness] shall have the right throughout the Term to operate the [premises], or any portion thereof, for uses permitted under this Lease." The permitted uses include "the operation of a health club and fitness facility" as well as other related uses, including provision of nutritional advice, conducting swim lessons, and operating a juice bar, among others. Section 2.2(b) states that "[Fitness] shall have, throughout the entire Term and any extensions and renewals hereof, peaceful and quiet possession and enjoyment of the [premises] without any ejection by [City Center] or by any other person by, through or under [City Center]." Subject to Fitness's adherence to the terms to which it agreed, City Center promised that "[Fitness] shall have . . . peaceful and quiet possession and enjoyment of the [premises] without any ejection by [City Center] or by any other person by, through or under [City Center]." The parties also agreed that the specified "representations, warranties and covenants" in the lease were "material and . . . relied upon by [Fitness]."
A nearly identical warranty is also contained in section 22.1 of the lease: "[Fitness] shall quietly enjoy the [premises] for the Term without hindrance or interruption by [City Center] or any other person or persons lawfully or equitably claiming by, through or under [City Center]."
In section 8.3, Fitness agreed that it would "not use or allow the [premises] to be used for any illegal purposes" and in section 8.2, City Center agreed that Fitness had "the right to change the use of the [premises] to any alternate legal use" any time after using the premises for one day. The lease also includes a force majeure clause in section 22.3 that could apply "[i]f either party is delayed or hindered in or prevented from the performance of any act required hereunder because of . . . restrictive laws . . . [and] subject to any limitations expressly set forth elsewhere in this Lease." Should a party be unable to perform a required act due to a "Force Majeure Event," section 22.3 provides that "performance of such act shall be excused for the period of delay caused by the Force Majeure Event." This section also excepts "financial inability" from the possible required events covered by the provision and states that "[d]elays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events." Finally, section 19.7 of the lease obligates City Center to pay interest on late payments due to Fitness: "[a]ny amount due from [City Center] to [Fitness] shall bear interest at the Interest Rate from the date due until paid." Section 1.13 specified that the interest rate would be" the lesser of (i) three percent (3%) per annum over the most recent annual prime or reference rate of interest announced by Bank of America . . . or (ii) the maximum rate permitted by Applicable Laws."
In 2019, the parties entered into an amendment to the lease agreement (the amendment) specifying that, among other things, Fitness could renovate the premises and that City Center would contribute up to $450,000 to the cost of renovation, payable within 30 days of written notification by Fitness. The amendment also includes the following integration clause: "This First Amendment constitutes the entire agreement and understanding between the parties with respect to the subject of this First Amendment and shall supersede all prior written and oral agreements concerning this subject matter." Fitness renovated the premises and, on March 27, 2020, notified City Center of the completed renovations. City Center paid Fitness $450,000 on July 16, 2020, 80 days after the due date of April 27, 2020. City Center did not pay interest for those 80 days.
Fitness paid timely rent from the beginning of the lease through March 2020. Beginning March 17, 2020, the State of Minnesota prohibited all businesses from operating as fitness centers. Emerg. Exec. Order No. 20-04, Providing for Temporary Closure of Bars, Restaurants, and Other Places of Public Accommodation (Mar. 16, 2020). The State of Minnesota allowed fitness centers to re-open in June 2020 if they followed specific restrictions and guidelines, including capacity limits and other industry guidance. Emerg. Exec. Order No. 20-74, Continuing to Safely Reopen Minnesota's Economy and Ensure Safe Non-Work Activities during the COVID-19 Peacetime Emergency (June 5, 2020). Minnesota law again prohibited businesses from operating as fitness centers from November 21 to December 18, 2020. Emerg. Exec. Order No. 20-99, Implementing a Four Week Dial Back on Certain Activities to Slow the Spread of COVID-19 (Nov. 19, 2020); Emerg. Exec. Order No. 20-103, Extending and Modifying Executive Order 20-99 (Dec. 17, 2020). During both closures, Fitness suspended collection of membership fees, but Fitness paid rent to City Center covering the entire duration of both closures.
Fitness brought this action seeking to recover the amounts paid during both closure periods. Both parties filed motions for summary judgment, and the relevant facts are not disputed. The district court denied Fitness's summary judgment motion and granted City Center's summary judgment motion. The district court also awarded City Center attorney fees and costs. This appeal follows.
DECISION
Fitness makes three primary arguments on appeal. First, Fitness argues that the district court erred in granting summary judgment because City Center breached the lease covenants during the periods of time when Minnesota law prohibited Fitness from using the premises for certain purposes. Because we agree with the district court that the undisputed facts show that City Center did not breach the lease, granting summary judgment in favor of City Center was appropriate.
Second, Fitness argues that the doctrines of impossibility and impracticability, the force majeure clauses in the contract, and the frustration-of-purpose doctrine justify refunding the amount Fitness paid in rent during the periods of time that Minnesota law prohibited Fitness from using the premises for certain purposes. Because Fitness cites to no binding legal authority that Fitness can apply these legal theories to City Center's performance and because Fitness cannot establish the requirements of the frustration-of-purpose defense, summary judgment was appropriate.
Finally, Fitness argues that the interest provisions of section 19.7 of the lease require City Center to pay interest on the late renovation contribution payment. Because the amendment contained an integration clause and because the lease did not contemplate renovation contributions, we agree with the district court's decision not to require City Center to pay interest on its renovation payment.
Fitness also argues the district court awarded attorney fees and costs in violation of Minnesota Rule of Civil Procedure 54.04(d). Because this rule governs costs and disbursements "provided by law," Minn. R. Civ. P. 54.04(a), and because the district court awarded attorney fees and costs based on the parties' contract, we deem the issue forfeited. Waters v. Fiebelkorn, 13 N.W.2d 461, 464-65 (Minn. 1944) ("[O]n appeal error is never presumed. It must be made to appear affirmatively before there can be reversal [T]he burden of showing error rests upon the one who relies upon it."); see also State v. Modern Recycling, Inc., 558 N.W.2d 770, 772 (Minn.App. 1997) ("An assignment of error based on mere assertion and not supported by any argument or authorities in appellant's brief is [forfeited] ...." (quotation omitted)).
A grant of summary judgment is appropriate "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Minn. R. Civ. P. 56.01. On appeal from summary judgment, an appellate court reviews "de novo whether there are any genuine issues of material fact and whether the district court erred in its application of the law to the facts." Great N. Ins. Co. v. Honeywell Int'l, Inc., 911 N.W.2d 510, 514 (Minn. 2018) (quotation omitted). "In conducting this review, we view the evidence in the light most favorable to the nonmoving party and resolve all doubts and factual inferences against the moving part[y]." Fenrich v. Blake Sch., 920 N.W.2d 195, 201 (Minn. 2018) (quotation omitted). When no material fact dispute exists, the interpretation of a contract is appropriate for summary judgment. Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998).
"[A] lease is a form of a contract." Metro. Airports Comm'n v. Noble, 763 N.W.2d 639, 645 (Minn. 2009). "A breach of contract is a failure, without legal excuse, to perform any promise that forms the whole or part of the contract." Lyon Fin. Servs., Inc. v. Ill. Paper &Copier Co., 848 N.W.2d 539, 543 (Minn. 2014). When reviewing contractual language, the "construction and effect of a contract" is a question of law reviewed de novo "unless the contract is ambiguous." Denelsbeck v. Wells Fargo &Co., 666 N.W.2d 339, 346 (Minn. 2003). Here, neither party argues that the contract includes any ambiguous terms, and we note that "[a] contract's terms are not ambiguous simply because the parties' interpretations differ." Staffing Specifix, Inc., v. Tempworks Mgmt. Servs., Inc., 913 N.W.2d 687, 692 (Minn. 2018). Courts give unambiguous language in a contract "its plain and ordinary meaning," and that meaning "shall be enforced by courts even if the result is harsh." Denelsbeck, 666 N.W.2d at 347 (quotation omitted). The contract must be read according to "the meaning assigned to the words and phrases in accordance with the apparent purpose of the contract as a whole." Halla Nursery, Inc. v. City of Chanhassen, 781 N.W.2d 880, 884 (Minn. 2010).
I. Determination that City Center Did Not Breach the Lease
Fitness first argues that the district court erred in determining that City Center did not breach sections 1.9 and 2.2 of the lease. We agree with the district court regarding both provisions.
In section 1.9, City Center agreed that Fitness could use the premises for certain enumerated purposes, including as a fitness facility. In section 2.2 of the lease, City Center warranted that neither it nor anyone on its behalf would prevent Fitness's use of the premises: "[Fitness] shall have . . . peaceful and quiet possession and enjoyment of the [premises] without any ejection by [City Center] or by any other person by, through or under [City Center]." During the closure periods, the State of Minnesota prohibited Fitness from using the premises as a fitness center.
Contrary to Fitness's argument, these facts alone cannot establish breach by City Center and additional undisputed facts show that City Center did not breach the lease. Fitness does not dispute that in section 8.3 of the lease, Fitness expressly agreed not to use the premises for any illegal purposes. Fitness also does not dispute that use of the premises as a fitness center during the closure periods would have been illegal. Compliance with section 8.3 cannot constitute a breach of sections 1.9 and 2.2. Such a conclusion is also supported by this court's recent analysis in SVAP III Riverdale Commons LLC v. Coon Rapids Gyms, LLC, 967 N.W.2d 81, 88 (Minn.App. 2021). In that case, we concluded that the landlord was not "responsible for the temporary changes in law arising from the emergency executive orders" noting that the lease included a provision that the tenant was required to comply with any and all laws and regulations applicable to the "use, safety, cleanliness or occupation of the Premises." Finally, as it relates specifically to section 2.2, the restriction on Fitness's use of the premises was not imposed by City Center or enforced by anyone acting on City Center's authority or behalf. For these reasons, we conclude that City Center did not breach the lease during the closure periods.
Violations of the executive orders constitute criminal misdemeanors. Emerg. Exec. Order Nos. 20-04, 20-74, 20-99, 20-103; see also Minn. Stat. § 12.45 (2020) (establishing that violations of emergency executive orders are misdemeanor criminal offenses).
In section 1.9, City Center agreed that the uses listed would not "violate any agreements respecting exclusive use rights or restrictions on use." To the extent any portion of Fitness's brief can be construed as an argument that the phrase "restrictions on use" includes the Emergency Executive Orders and is not merely modifying the term "agreements" as used in that sentence, Fitness failed to raise this argument before the district court, and we decline to address it on appeal. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (stating that a party cannot raise a new issue on appeal or obtain review by raising an issue litigated below under a different theory).
II. Application of Legal Defenses as Theories Supporting Fitness's Claims
Fitness also argues that the doctrine of temporary impossibility, the doctrine of impracticability, the force majeure clause in the parties' lease, and the doctrine of frustration of purpose support its claim for a refund of rent paid during the closure periods. We are not persuaded because these legal theories are defenses to a breach-of-contract claim, excusing a party for not performing a required act. Fitness cites to no binding authority allowing Fitness to assert these defenses in support of its claim that City Center breached the contract. In addition, the undisputed facts cannot satisfy the requirements of the doctrine of frustration of purpose.
The doctrines of impossibility and impracticability can excuse a party's nonperformance when,
due to the existence of a fact or circumstance of which the promisor at the time of the making of the contract neither knew nor had reason to know, performance becomes impossible, or becomes impracticable in the sense that performance would cast upon the promisor an excessive or unreasonably burdensome hardship, loss, expense, or injury.Powers v. Siats, 70 N.W.2d 344, 348 (1955) (footnote omitted). Mere difficulty of performance alone will not ordinarily excuse a party from its contractual obligations. Id. at 349. Similarly, the force majeure clause in section 22.3 of the lease excuses "the performance of any act required" when the performing party is delayed, hindered, or otherwise prevented from the performance of the required act: "performance of such act shall be excused for the period of delay caused by the Force Majeure Event." Fitness acknowledges that it performed its obligations under the lease and continued to pay rent during the closure period. Instead of arguing its nonperformance should be excused, Fitness argues that the opposing party, City Center, was hindered from performing required acts, something City Center disputes. Fitness directs us to no legal authority that permits use of these legal theories to establish a breach of contract, and we are aware only of Minnesota authorities relying on these legal theories to excuse the nonperformance of an act required by the party asserting these theories. We decline to extend these legal theories as Fitness urges.
Moreover, even if these theories applied, it is undisputed that section 8.2 provided Fitness the option to use the premises for "any alternate legal use" any time after using the premises for one day. Fitness does not explain how, given that section 8.2 allowed Fitness to pursue any alternate legal use of the premises, City Center's performance could have been impossible, impractical, or otherwise hindered by a force majeure event.
Fitness also argues that its obligation to pay rent was temporarily excused by the doctrine of frustration of purpose. We disagree for two reasons. First, like the legal theories addressed above, Fitness cites to no authority permitting the frustration-of-purpose doctrine to be used to establish a breach-of-contract claim. Indeed, this court has concluded the contrary, concluding that that a party may not "use the defense of frustration of purpose as a sword rather than a shield." Little Canada Charity Bingo Hall Ass'n v. Movers Warehouse, Inc., 498 N.W.2d 22, 24-25 (Minn.App. 1993), rev. denied (Minn. May 18, 1993). Second, Fitness cannot establish the requirements of the frustration-of-purpose doctrine. The frustration-of-purpose doctrine requires the party asserting frustration of purpose to establish that the principal purpose in making a contract is frustrated "without that party's fault." E.g., Nat'l Recruiters, Inc. v. Toro Co., 343 N.W.2d 704, 707 (Minn.App. 1984) (listing the three elements of the frustration-of-purpose doctrine). In other words, a party's own conduct cannot contribute to the frustration of purpose that it alleges. Also, to prevail under the frustration-of-purpose doctrine, "the frustration must be substantial," and "[i]t is not enough that the transaction has become less profitable for the affected party." City of Savage v. Formanek, 459 N.W.2d 173, 176 (Minn.App. 1990), rev. denied (Minn. Oct. 25, 1990). In this case, Fitness does not dispute that the emergency orders did not prohibit all of the stated purposes in the lease. Nor does Fitness dispute that it was permitted to use the premises for any alternate legal use under section 8.2. Given these undisputed facts, Fitness cannot establish the elements of the frustration-of-purpose doctrine.
III. Interest Owed on Renovation Contribution
Fitness next argues that the district court erred in determining that City Center did not owe interest on its late renovation contribution payment to Fitness. Specifically, Fitness contends that the interest provisions in section 19.7 of the lease apply to payments made under the amendment regarding renovation. City Center disagrees and argues that the amendment includes an integration clause, rendering the interest provision of the lease inapplicable to payments made pursuant to the amendment. We agree with City Center that the amendment was a fully integrated contract, separate from the lease.
Neither party argues that any term of either written agreement is ambiguous. Nor do the parties dispute any fact issues. The only disagreement is whether the interest provisions of section 19.7 of the lease apply to payments made pursuant to the amendment.
When "parties have reduced their agreement to an unambiguous integrated writing," courts cannot interpret that written agreement by relying on extrinsic evidence, including "extrinsic evidence of prior or contemporaneous oral agreements, or prior written agreements." Danielson v. Danielson, 721 N.W.2d 335, 338 (Minn.App. 2006) (quoting Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn. 2003)). Even when a subsequent written contract makes passing reference to a previous one, courts cannot consider the previous written agreement when interpreting the terms of the subsequent agreement if the subsequent agreement contains an integration clause. See Alpha Real Estate, 664 N.W.2d at 313 (concluding that a written agreement was a separate, integrated contract where prior writing was only referenced in subsequent writing to provide definition for term).
In this case, although the amendment does reference the lease when providing definitions for certain terms, the lease makes no reference to renovation contribution payments, and the amendment makes no reference to interest charges for late payments. The amendment expressly states that it is the entire agreement of the parties regarding amended terms: "This First Amendment constitutes the entire agreement and understanding between the parties with respect to the subject of this First Amendment and shall supersede all prior written and oral agreements concerning this subject matter." This language makes clear that the "subject matter" of the amendment is distinct from the lease. Given this unambiguous integration provision, we cannot agree with Fitness that the interest provisions of section 19.7 of the lease apply to renovation contribution payments made pursuant to the amendment.
Affirmed.