Opinion
No. C1-01-1060.
Filed January 22, 2002.
Appeal from the District Court, Hennepin County, File No. CT9710122.
Michael Berens, Barbara P. Berens, Erin K. Fogarty Lisle, Daniel C. Bryden, Kelly Berens, P.A., (for respondent)
Gregory J. Stenmoe, Jason M. Hedican, Briggs and Morgan, P.A., (for appellant)
Considered and decided by Shumaker, Presiding Judge, Huspeni, Judge, and Foley, Judge.fn_
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant B. Dalton Bookseller, Inc. leased from respondent Winthrop Resources Corporation computer equipment under a master lease with separate "lease schedules" for various items. The parties became involved in disputes over the existence of a purchase option and the procedure required for returning equipment upon termination of the lease.
Winthrop started two lawsuits. The parties settled the first, and both parties moved for summary judgment in the second. On appeal from summary judgment in Winthrop's favor, B. Dalton challenges the district court's rulings on the correct interpretation of the lease, anticipatory repudiation, mitigation of damages, and damages resulting from casualty loss. Winthrop seeks review of the district court's determination that it is not entitled to compensation for damaged equipment. Because we find no reversible error in the district court's rulings, we affirm.
FACTS
Appellant B. Dalton Booksellers, Inc. leased computer equipment from respondent Winthrop Resources Corporation under a master lease that contained eight separate "lease schedules" for various items.
When the parties became involved in a dispute over the existence of a purchase option, Winthrop sued. In settlement of that lawsuit, B. Dalton agreed to buy the equipment listed in one of the lease schedules and to retain and continue leasing the rest of the equipment. The parties also agreed that B. Dalton could terminate the remaining lease schedules on a 120-day notice to Winthrop and could return the equipment in accordance with the lease provisions.
B. Dalton later notified Winthrop of its intent to terminate various lease schedules on various dates. In response, Winthrop told B. Dalton that any returned equipment would have to be identified by serial number. B. Dalton objected, stating that the lease did not require serial-number identification, and asked Winthrop whether it would reject returned equipment not identified by serial number. Winthrop insisted on serial-number identification, and informed B. Dalton that any equipment not returned with such identification would "continue to roll over for additional lease periods." Winthrop also said that it would return to B. Dalton any equipment not identified by serial number.
B. Dalton did not ship any equipment, and Winthrop sued, seeking the court's order requiring B. Dalton to return equipment with serial-number identification and to continue to make lease payments until such return. B. Dalton counterclaimed, asking that the court declare that the lease does not require identification of returns by serial number, that Winthrop breached both the lease and its obligation of good faith and fair dealing, and that B. Dalton is entitled to an award of attorney fees and costs.
The district court granted summary judgment to B. Dalton, ruling that the lease does not require returned equipment to be identified by serial number, and that Winthrop breached the lease when it refused to accept the return of equipment without serial-number identification. In a supplemental order, the court ruled that the value of any leased equipment that B. Dalton might have lost or damaged after the 60 month lease term would equal 30.6% of its original cost as provided in the "Casualty Loss Value" riders affixed to the lease schedules. Both parties appealed. This court dismissed the appeal as premature because the district court had not yet ruled on damages or attorney fees. Winthrop Res. Corp. v. B. Dalton Booksellers, Inc., No. C8-98-735 (Minn.App. May 19, 1998) (order).
After the dismissal of the appeal, B. Dalton retained equipment and continued to make lease payments under four of the schedules. It then stopped all payments, but did not give a new termination notice and did not return any equipment.
Thus, with the action still pending in the district court, the parties filed cross-motions for summary judgment, seeking rulings on three issues: (1) B. Dalton's lease obligations after Winthrop's breach; (2) damages; and (3) attorney fees.
Based on the parties' submissions and testimony, the district court held that, by retaining equipment and making some lease payments after the court determined that Winthrop had breached the lease and that B. Dalton could return the equipment without serial-number identification, B. Dalton had waived the breach and had demonstrated its intention to continue to lease the equipment. Therefore, the court held B. Dalton liable for lease payments for the period during which it retained the equipment, and for damages for missing equipment. The court also ruled that B. Dalton's waiver relieved Winthrop of the obligation to mitigate damages until B. Dalton stopped making lease payments. Lastly, the court held that neither party breached its duty of good faith and fair dealing, and that Winthrop is entitled to casualty loss damages for missing or irreparably damaged equipment. The court adopted the parties' stipulation as to attorney fees and sales taxes, and denied B. Dalton's motion for amended findings.
B. Dalton challenges the district court's rulings on breach of contract and damages. Through its notice of review, Winthrop challenges the district court's rulings as to the amount of casualty-loss damages.
DECISION
On appeal from a summary judgment, this court must determine whether there exists any genuine issue of material fact for trial and whether the district court erred in applying the law. Schons v. State Farm Mut. Auto. Ins. Co., 621 N.W.2d 743, 745 (Minn. 2001). The parties do not contend that there are material fact issues in dispute, but rather that the district court erred in its application of the law. We review legal issues de novo. Moreno v. Crookston Times Printing Co., 610 N.W.2d 321, 327 (Minn. 2000). The principal issues in dispute relate to the district court's interpretation of the parties' lease contract. Contract interpretation is a legal issue and, as such, we employ a de novo review. Lake Superior Paper Indus. v. State, 624 N.W.2d 254, 258 (Minn. 2001).
1. Anticipatory Repudiation
B. Dalton argues that "Winthrop anticipatorily repudiated the Lease by refusing to accept return of non-serial-number-specific (`generic') equipment in April, 1997." Because of Winthrop's alleged anticipatory repudiation, B. Dalton contends that it had no obligation to perform unless Winthrop retracted the repudiation and gave assurances that it would perform its own obligations under the lease. Winthrop never retracted its repudiation and never gave assurances, according to B. Dalton. Thus, B. Dalton argues that it is not liable for the lease payments occurring after Winthrop's breach. The district court held otherwise, and we do as well.
The district court granted B. Dalton's summary judgment motion in December 1997, ruling that Winthrop breached the lease by refusing to accept the return of equipment without serial-number identification because the lease does not require such identification as a condition of return. This ruling was listed as an issue in the premature appeal. After the dismissal of the appeal, Winthrop never challenged it again.
Thus, as of the dismissal of the appeal, there existed a binding judicial determination that Winthrop could not refuse the return of the equipment merely because it had no serial-number identification. B. Dalton's sole reason for not returning the equipment after its notice of termination was Winthrop's serial-number identification requirement. Once the district court had determined that such identification was not a proper requirement under the lease and that Winthrop's conduct constituted a breach of the lease, B. Dalton had no legal basis for further concern about anticipatory repudiation or retraction. Winthrop had to accept the return of the equipment or face the possibility of contempt sanctions. See State by Johnson v. Sports Health Club, Inc., 392 N.W.2d 329, 337 (Minn.App. 1996) (finding party in civil contempt for failure to comply with court order), review denied (Minn. Sept. 24, 1986). Despite B. Dalton's judicially established legal right to return the equipment, it retained the equipment and continued to make some lease payments.
B. Dalton could have effected its termination of the lease by returning the equipment. We find no error in the district court's holding that, considering the nature of the agreement as "a continuing and renewable lease obligation," by retaining the equipment and making lease payments for seven months after Winthrop was found to be in breach of the lease, B. Dalton waived the breach and demonstrated its intent to continue to lease the equipment. Because of its waiver, B. Dalton became obligated to make the lease payments until termination of the lease. See Creative Communications Consultants, Inc. v. Gaylord, 403 N.W.2d 654, 657 (Minn.App. 1987) (stating that party's continued recognition of contract as binding after an alleged breach acts as a waiver of that breach). B. Dalton's failure to make all payments due after its waiver of the breach subjected B. Dalton to liability for amounts in default.
2. Assurances
B. Dalton next argues that even after the district court's holding that Winthrop breached the lease, Winthrop still had to give assurances that it would accept the return of the equipment without serial-number identification and that its failure to do so constituted still another breach of the lease.
Under the Uniform Commercial Code, if a party to a lease has reasonable grounds for insecurity about whether the other party will perform its obligations, the insecure party may demand written assurance that the other party will perform. Minn. Stat. § 336.2A 401(2) (2000). A failure to give adequate and timely assurance constitutes a repudiation of the lease. Minn. Stat. § 336.2A 401(3) (2000).
B. Dalton contends that it requested adequate assurance from Winthrop on February 10, 1999, specifically that Winthrop "would accept return of non-serial-specific equipment." The premature appeal had been dismissed on May 19, 1998. Thus, by the time of B. Dalton's request for assurances there was no longer any genuine issue as to whether or not Winthrop was legally required to accept precisely that which B. Dalton claimed to be insecure about. Thus, B. Dalton did not have reasonable grounds for insecurity about the performance in dispute. Winthrop was not required to give assurances, for the district court had already provided a definitive and clear assurance as to Winthrop's obligation.
3. Paragraph 18(c) Bar
B. Dalton argues that Paragraph 18(c) limits Winthrop to the recovery of its "Expected Return" on the lease and that Winthrop has already realized its expected return through the lease payments. Thus, according to B. Dalton, Winthrop cannot recover further amounts as damages.
Paragraph 18(c) provides in part as follows:
Lessor's pursuit and enforcement of any one or more remedies shall not be deemed an election or waiver by Lessor of any other remedy, but Lessor shall not be entitled to recover a greater amount in damages than Lessor could have gained by receipt of Lessee's full, timely and complete performance of its obligations pursuant to the terms of this Lease Agreement.
The district court held that the nature of the lease as being automatically renewable beyond the original lease term and potentially running indefinitely makes untenable the theory that Paragraph 18(c) limits Winthrop's damages to the expected return for the original 60 month term. We agree.
Paragraph 18(c) limits double recovery of damages, but it does not limit damages to the expected return when read in context of the lease as a potentially ongoing transaction. If that were so, B. Dalton could just retain the equipment after the expiration of the lease term and not be responsible for further payments because Winthrop would already have realized its expected return.
4. Mitigation of Damages
B. Dalton asserts that Winthrop failed to mitigate its damages. The district court held that, because B. Dalton waived Winthrop's breach and continued to make lease payments for several months, no mitigation obligation could have arisen until after B. Dalton stopped making lease payments. See Deutz Allis Credit Corp. v. Jensen, 458 N.W.2d 163, 166 (Minn.App. 1990) (the nonbreaching party must use reasonable diligence to mitigate damages).
But it is well settled that the duty is on the breaching party to show that damages could have been mitigated by reasonable diligence. Lanesboro Produce Hatchery Co. v. Forthun, 218 Minn. 377, 381, 16 N.W.2d 326, 328 (1944). B. Dalton argues that Winthrop had the right to demand that B. Dalton return the equipment and the right to repossess the equipment. By doing neither, Winthrop failed to mitigate its damages.
The district court held that Winthrop could have made more of an effort to mitigate damages but that B. Dalton also could have done more to make the damages less than they were. It appears that the district court was ruling that B. Dalton had equal ability to control damages and, thus, B. Dalton failed to prove that Winthrop breached its duty to mitigate.
Assuming that to be the intent of the district court's ruling, we find no error. Other than in a conclusory manner, the evidence does not support the notion that Winthrop failed to take necessary steps, under the circumstances, to reduce damages. Furthermore, there is authority that the lessor need not repossess goods to satisfy the duty to mitigate. See Shasteen v. Mid Continent Refrigerator Co., 517 S.W.2d 437, 440 (Tex.App. 1974) (equipment lessor not under contractual obligation to accelerate lease payments or to repossess in order to mitigate damages).
5. Casualty Loss
The district court awarded to Winthrop casualty-loss damages for equipment irreparably damaged or not returned. The court reasoned that the lease calls for the return of the equipment upon termination and for compensation in the amount of 30.6% of the original cost of missing or irreparably damaged equipment. The court held that the lease language is unambiguous and must be enforced according to the intent manifested in the plain language of the contract. We agree and find no error in the district court's ruling. See Metro. Sports Facilities Comm'n v. Gen. Mills, Inc., 470 N.W.2d 118, 123 (Minn. 1991) (where the language of a contract is plain and unambiguous, the court must enforce the contract as written).
6. Notice of Review Issue
In its notice of review, Winthrop challenges the district court's ruling that Winthrop is entitled to casualty-loss damages only for missing equipment and not also for damaged equipment. Yet Winthrop does not contend that there is any fact issue for review. In its brief, Winthrop states:
Here, virtually all of the issues before this court involve the construction, analysis of legal effect, or determination of ambiguity of the relevant documents. As a result, the standard of review is de novo.
Although the district court's ruling on casualty-loss compensation for damaged equipment would seem to raise both factual and legal issues, Winthrop's urging that there are no fact issues on appeal compels us to review the district court's damages ruling as a legal issue. The court held that the casualty-loss standard specified in the lease required Winthrop to show "how much, if any, of the equipment was irreparably unusable or damaged," and that Winthrop failed to meet that standard. The district court did not err in ruling that an ambiguous attempt to show damage to some of the returned equipment did not meet the lease standard.