Opinion
3:96-CV-3216-P
April 12, 2002
ORDER
Now before the Court are:
1. Petula's Second Motion to Enforce Fifth Circuit Mandate, filed October 4, 2001, Dolco's Response, and Petula's Reply;
2. Dolco's Motion for Equitable Accounting and for Determination of Legal Fees, filed October 4, 2001, Petula's Response, and Dolco's Reply; and
3. Dolco's Motion to Strike Petula's Reply Brief, filed November 19, 2001, Petula's Response, and Dolco's Reply.
After considering the parties' arguments and briefing, and the applicable law, the Court GRANTS Petula's Motion to Enforce Fifth Circuit Mandate, DENIES Dolco's Motion for Equitable Accounting and for Determination of Legal Fees, and DENIES Dolco's Motion to Strike Petula's Reply Brief.
I. Background
This case is before the Court after remand from the Fifth Circuit Court of Appeals. Petula Associates, Ltd. ("Petula" or "Plaintiff") and Dolco Packaging Corporation ("Dolco" or "Defendant") entered into a lease with purchase option. This litigation began when the parties failed to agree on how to appraise the value of the lease property when Dolco wanted to exercise the purchase option. This Court determined what the meaning of the term "fair market value" meant and held that the appraisal of the property need not include the value of the lease. Final judgment was entered on December 2, 1999. In the final judgment, the Court ordered that Dolco was entitled to an equitable accounting for the value of rent paid from July 18, 1998 until November 30, 1999.
Both parties subsequently appealed this Court's decisions. However, while the appeal was pending, the parties entered into a "Stipulation and Standstill Agreement," filed with the Court on December 1, 1999. The agreement included various provisions, and according to the document itself, it was meant to "preserve [the parties'] appellate rights, yet avoid disputes during and after appeal." Stipulation Standstill Agreement, at 1. Several provisions affect the Court's determination of the issue now before it.
Paragraph 5 of the Agreement stipulates that, "[u]nless the award to Dolco for an equitable accounting is reversed, the Accounting shall be calculated as follows:
(Base Rent minus (1/12 of 8% of the Purchase Price)) per month from the beginning date of the Accounting plus interest at the rate of 8% per annum on each such net amount from the date of payment to November 30, 1999."
Stipulation Standstill Agreement, ¶ 5, at 2 (emphasis in original).
The Agreement also stated that "[i]f that portion of the Judgment awarding specific performance is not reversed, Dolco shall pay Petula an amount calculated as follows:
Purchase Price minus Accounting (as calculated under Paragraph 5, above), plus interest on that amount at the rate of 8% per annum from December 1, 1999 through the date of payment by Dolco."
Stipulation Standstill Agreement, ¶ 7, at 2 (emphasis in original).
Finally, the Agreement stated that "[i]f the award to Dolco for an Accounting is reversed, then Dolco will pay to Petula (in lieu of the interest described in the preceding paragraph) back base rent under the Lease from December 1, 1999 until closing of the transfer of the Property." Stipulation Standstill Agreement, ¶ 8, at 2.
Subsequently, the Fifth Circuit Decided the appeal on February 12, 2001. The Court of Appeals reversed in part and affirmed in part. The Fifth Circuit reversed this Court's holding that the fair market value did not include the value of the lease. Petula Assoc., Ltd. v. Dolco Packaging Corp., 240 F.3d 499, 502-04 (5th Cir. 2001). The Fifth Circuit affirmed the Court in its ruling that Petula could not transfer the property subject to a mortgage. Id. at 504. The equitable accounting and attorneys' fee awards were vacated. Id. at 504-05. The Fifth Circuit vacated only the award of attorneys' fees without prejudice. Id. at 505.
The parties now both move the Court to enforce the Fifth Circuit's mandate and complete the purchase of the property because a dispute remains as to whether Dolco is entitled to an offset in the purchase price for the rent it has paid on the property since the option to purchase was exercised in 1996. Dolco requests a second equitable accounting to determine the amount of such an offset. Petula wants the parties to be bound by the terms of the Stipulation and Standstill Agreement, which Plaintiff argues does not entitle Dolco to such an accounting or any offset of the purchase price.
II. Discussion
To determine how to enforce the Fifth Circuit's mandate the Court needs to resolve two issues. First, does the Fifth Circuit's decision resolve the question of whether Dolco is entitled to an equitable accounting. Second, if an issue regarding accounting remains, is Dolco barred from seeking such a remedy by the Stipulation and Standstill Agreement.
A. Equitable Accounting and the Preceding Litigation
Dolco seeks an equitable accounting to account for the rent it has paid during the course of this litigation. Dolco argues that it is entitled to such an accounting based upon equitable principles. Because the Court has ordered specific performance of the sale, Dolco asserts that the Court should determine the price of the property and include a credit to Dolco for the rent it has paid because of the lengthy litigation. Essentially, Dolco wishes to be placed in the position it would have been in had the sale been completed in 1996 at the exercise of the purchase option.
Petula argues that this issue has been resolved by the Fifth Circuit's decision and that Dolco should be prohibited from re-arguing this issue before the Court. However, the Court finds that the relief that Dolco now seeks is distinct from the Circuit court's earlier ruling.
The Court of Appeals did reverse this Court's award of an equitable accounting. However, the decision grew out of the court's rejection of the Court's standard for determining the purchase price of the property. "As a consequence of our decision above that the fair market value must include the value of the lease, the June 18, 1998 appraisal of the `then fair market value' for purpose of Dolco's exercise of its purchase option pursuant to Paragraph 43(A)(ii) was incorrect as a matter of law." Petula, 240 F.3d at 505.
Now, Dolco cites to Texas law and argues that it is entitled to a credit for all of the rent it has paid since the option to purchase was exercised in 1996. The Court's earlier order for an equitable accounting was an attempt to credit Dolco with rents paid because the Court had agreed with Dolco's method for determining the "fair market value" of the property. The Fifth Circuit found that it was Petula's method of determining the value of the property that was proper, and therefore the earlier equitable accounting had to be set aside.
Dolco argument now is based upon principles of equity, and is distinct from the earlier rationale supporting an equitable accounting. Dolco argues that it should be made whole by putting it in the position that it would have been in had the 1996 purchase been completed. Texas law supports this general proposition:
When specific performance of a contract to convey real property is granted, the court will enforce the equities of the parties in such a manner as to put them as nearly as possible in the position they would have occupied had the conveyance been made when required by the contract. . . . In a suit for specific performance of a contract for the sale of real estate, rental value of the property is recoverable by the purchase from the time that demand for specific performance and tender of purchase price is made.Heritage Housing Corp. v. Ferguson, 674 S.W.2d 363, 366 (Tex.App. — Dallas 1984, writ ref'd n.r.e.). Therefore, the Court finds that it is within its power to grant such an accounting based upon equitable principles and is not foreclosed by the Fifth Circuit's decision. However, the question of whether such an equitable accounting should be ordered in this case remains.
B. Effect of the Stipulation Standstill Agreement
The Court must consider more than the equitable result in the instant case. The parties entered into an agreement during the pendency of the appeal to the Fifth Circuit. The Court finds that the Stipulation and Standstill Agreement ("Agreement") was intended to set out each parties' rights and obligations depending upon the Fifth Circuit's decision.
The Stipulation and Standstill Agreement set out the various outcomes of the appeal and the subsequent responsibilities of the parties. As the Agreement itself notes, its purpose was to "preserve the parties'] appellate rights, yet avoid disputes during and after appeal." Stipulation Standstill Agreement, at 1. To that end, the Agreement attempts to govern the details of the sale once the Fifth Circuit ruled.
The parties did not appeal this Court's decision to order specific performance of the sale. Rather, they disputed the method of calculating the purchase price. The dispute was whether or not the "fair market value" includes the value of the lease. The Court finds that Paragraph 8 governs in the instant situation. Paragraph 8 went into effect "[i]f the award to Dolco for an Accounting is reversed." Stipulation Standstill Agreement, ¶ 8, at 2. The Fifth Circuit did reverse this Court's granting of an equitable accounting and its method of valuing the property. Therefore, the condition has been met, and therefore, the remedy outhned in paragraph 8 should be enforced. That is, "Dolco will pay to Petula (in lieu of the interest described in the preceding paragraph) back base rent under the Lease from December 1, 1999 until closing of the transfer of the Property." Id.
This is the result mandated by the Agreement, even though it results in Dolco paying rent for a period that Dolco would have owned the property had the sale closed in 1996. Although Dolco argues that such a result is inequitable, this is the result required by the Agreement they entered. This result is mandated by the Agreement, and the Court is bound to enforce the Agreement. Dolco's request for an equitable accounting, if granted, would give Dolco the same result as they would have received had the Fifth Circuit affirmed, rather than reversed, this Court. That is, the Agreement called for Dolco to receive the purchase price, less rents paid by Dolco, if the Fifth Circuit affirmed the earlier accounting. See Stipulation Standstill Agreement, ¶ 5, at 2. In addition, Dolco would have received interest on top of interest pursuant to the Agreement. Further, Paragraph 8, while requiring Dolco to pay rent, does not require Dolco to pay any interest to Petula on the amount of the purchase price for the period between 1996 and the closing.
The Court finds, therefore, that the Agreement is enforceable, and that paragraph 8 should be enforced. Dolco must pay rent for the period of December 1, 1999 until the present, even though the purchase price it will pay includes the value of the lease, and Dolco would have owned the property outright but for this litigation. The Court does not reach the result that Dolco deems equitable because the parties themselves altered their rights and responsibilities for the sale through the Stipulation and Standstill Agreement. Although Dolco claims now that the result of the Agreement leads to an inequitable result, Dolco knew or should have known the risks it took in entering into such an agreement. It is evident that the Standstill Agreement was the product of negotiation with give and take from both sides. It is not unfair to now hold Dolco to the agreement it has made.
C. Motion to Strike
The Court DENIES Dolco's Motion to Strike Petula's Reply. The Court held a status conference with counsel and each side has had the opportunity to respond to the other's arguments. Therefore, the Court considers all of the papers filed in these motions.
Conclusion
Therefore, the Court finds that Dolco is not entitled to an offset for rents paid, and in fact must pay back rent to Petula for the period of December 1, 1999 until closing of the transfer of the property. Accordingly, Dolco's Motion for an Equitable Accounting is DENIED and Petula's Motion to Enforce Fifth Circuit Mandate is GRANTED. The Court ORDERS Petula and Dolco to close the purchase and sale of the property as follows:
1. Closing of the purchase by Dolco of the property shall occur on April 30, 2002.
2. Dolco shall deliver to Petula at closing a certified check for an amount equal to the sum of $4,600,000.00 (purchase price of the property) plus $1,462,439.26 (the stipulated back rent as owed as of April 30, 2002).
3. Petula shall deliver to Dolco at closing a deed for the property in the from previously ordered by this Court and a Release from Principal Life Insurance Company for the deed of trust lien.