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COURT OF APPEALS DECISION DATED AND RELEASED August 28, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-3131
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT II
RAY FLAHERTY, formerly
d/b/a
FLAHERTY ENTERPRISES,
INC.,
Plaintiff-Appellant,
v.
ERNIE VON SCHLEDORN
and
MARGARET VON
SCHLEDORN,
Defendants-Respondents.
APPEAL from an order of
the circuit court for Ozaukee County:
JOSEPH D. MC CORMACK, Judge. Affirmed.
Before Anderson, P.J.,
Brown and Nettesheim, JJ.
BROWN, J. Ray Flaherty contends
that Ernie and Margaret Von Schledorn breached their lease on commercial
property which he owned in Port Washington.
He separately contends that even if the Von Schledorns did not breach
the lease, they committed waste and must pay to restore the property.
The circuit court,
however, awarded summary judgment to the Von Schledorns after determining that
Flaherty breached the lease when he failed to remove leaking underground
storage tanks as the lease required. We
agree with this interpretation of the lease and further hold that Flaherty
constructively evicted the Von Schledorns when he failed to clean up the damage
from these tanks as he promised to do in the lease.
Moreover, we conclude
that Flaherty may not bring a suit for the cost of returning the property to
its original condition. Flaherty
understood that the Von Schledorns would renovate the property when he signed
the lease. Moreover, the waste he now
complains about, the uncompleted renovations, arose out of his failure to cure
the tank problem, not from any misconduct by the Von Schledorns.
The parties formed the
lease in June 1990 and scheduled it to run through December 1995. The space was formerly used as a car
dealership and repair shop. The Von
Schledorns intended to update the property for the same use. During renovations, however, the Von
Schledorns discovered that some of the underground storage tanks were leaking
and had to be removed pursuant to state regulations.
Once the Von Schledorns
discovered the tank problem, they sent notice to Flaherty asking that he remove
these tanks, as the lease required.
After Flaherty failed to take any action, the Von Schledorns eventually
abandoned the property in October 1991.
Flaherty subsequently responded in November 1993 by filing a breach of
contract action seeking lost rent and additional money to repair the damage
done during the Von Schledorns' attempt at renovations.
After the Von Schledorns
moved for summary judgment, the circuit court ruled that the lease assigned
Flaherty the duty to remedy the storage tank problem. The court also concluded that Flaherty breached the lease when he
failed to respond to the Von Schledorns' requests.
We first turn to whether
the circuit court properly analyzed the lease.
The interpretation of a lease, like other written documents, is a
question of law and we owe no deference to the circuit court's analysis. See Schmitz v. Grudzinski, 141
Wis.2d 867, 871, 416 N.W.2d 639, 641 (Ct. App. 1987).
Flaherty argues that the
court erred in its conclusion that he bore the responsibility of removing the
storage tanks. Indeed, Flaherty
contends that the lease was “silent as to what the remedy would be with regard
to any possible leakage of underground storage tanks.”
The following language
from the lease nonetheless dictates that Flaherty had such a duty and controls
the outcome on this issue.
Landlord represents and warrants that the demised
premises presently is in compliance with Environmental Laws and that there are
no Hazardous Substances presently in or about the demised premises. Landlord further agrees that in the event
of a breach of the foregoing representation or warranty that the cost of
remediation or compliance shall be borne by Landlord. Landlord shall promptly after demand perform
such remediation and compliance as may be necessary. If Landlord fails to perform such remediation and compliance,
then Tenant may perform the same and offset the costs thereof against
next rent due .... [Emphasis added.]
As the Von Schledorns
contend, this passage gave Flaherty the duty to remedy the storage tank
problem. Indeed, we do not see how the
first passage that we have highlighted could be more explicit. In addition, the parties' decision to use
the mandatory word “shall” to express Flaherty's responsibility, and the
permissive word “may” to express the Von Schledorns' responsibility, convinces
us that only Flaherty was responsible for the clean-up costs. Since Flaherty acknowledges that he was
informed of the storage tank problem (he explains that he did not have all the
necessary funds), we hold that the circuit court correctly found that Flaherty
breached this element of the lease.
We next turn to
Flaherty's contention that his breach of the lease was not substantial enough
to constitute a constructive eviction and that the Von Schledorns still have an
obligation to pay rent. See First
Wis. Trust Co. v. L. Wieman Co., 93 Wis.2d 258, 267-68, 286 N.W.2d 360,
364-65 (1980). Pointing to the
extensive renovations that the Von Schledorns had begun, Flaherty argues that
the leaking underground storage tanks did not materially affect their
anticipated use of the property because business was already disrupted. See id. at 268, 286 N.W.2d at
365.
We reject this argument
as well. The Von Schledorns did plan
extensive renovations to the property.
But in the middle of their work, they discovered an environmental
problem which singularly barred them from finishing the job. While Flaherty argues that cleaning the site
would not have been a “huge inconvenience” considering the extent of what the
Von Schledorns planned to do, the parties' decision to include terms assigning
responsibilities for such hazards rebuts his claim. The contract reveals that the parties indeed thought about this
issue and decided that it was significant enough to assign specific
contingencies. We further observe that
the problem of leaking underground storage tanks, contrary to Flaherty's
characterization, are enough of a problem in this state that the administrative
agencies have devoted several sections of the code to address it. See generally Wis. Adm. Code § NR 705.11 and §§ ILHR
10.50-10.738. We conclude that the
leaking tanks presented a significant interruption to the Von Schledorns' use
of the property and Flaherty constructively evicted these tenants when he
failed to cure the problem. See First
Wis. Trust, 93 Wis.2d at 269, 286 N.W.2d at 365.
In addition to the above
arguments, we also discern from Flaherty's briefs an equitable argument against
enforcing the lease in this manner because it permits the Von Schledorns to use
the storage tank problem as an “excuse” to get out of this lease and develop a
more suitable site. He acknowledges
that the Von Schledorns would have faced up-front expenses to remove the tanks
themselves, but he notes that the state has a program to reimburse most of
these costs and that he offered to ultimately reimburse the Von Schledorns for
any extra costs. He ties up this
argument in his reply brief with a citation to Market St. Assocs. Ltd. Partnership
v. Frey, 941 F.2d 588 (7th Cir. 1991), and seemingly suggests that the
Von Schledorns' request that he fulfill his obligation under the contract, when
they knew he was in a precarious financial situation, was a breach of the
implied duty of good faith and within the class of “sharp dealing” that the
Seventh Circuit Court of Appeals was critical of. See id. at 594.
We reject Flaherty's
suggestion that equity requires that we set aside this term of the
contract. We base this conclusion on
procedural grounds and on the merits.
Regarding procedure,
Flaherty first hints at his good faith argument in his reply brief. Our rule against considering arguments
raised only in a party's reply brief therefore applies against Flaherty. He has waived his right to pursue this
argument. See Swartwout III v.
Bilsie, 100 Wis.2d 342, 346 n.2, 302 N.W.2d 508, 512 (Ct. App. 1981).[1]
We alternatively reject
the merits of Flaherty's claim that the theories discussed in Market
Street Associates applies to this controversy. There, a landlord alleged that its tenant
was acting in bad faith by trying to enforce a hidden term of the lease which,
on its face, gave the tenant the option to purchase the leased property at below
market value. See Market Street
Assocs., 941 F.2d at 591-92.
The Seventh Circuit concluded that Wisconsin law read into a contract an
implied duty of good faith, id. at 592, and that this duty of
good faith possibly prevented the tenant from engaging in what could be termed
“opportunistic behavior.” See id.
at 597.
The Seventh Circuit drew
a line, however, noting that a party is “not required to spend money bailing
out a contract partner who has gotten into trouble.” Id. at 594.
But this is precisely what Flaherty expected the Von Schledorns to have
done in this case.
The Market Street
Associates panel, moreover, was specifically concerned about long-term
contracts, such as leases, where the parties face “unforeseen problems.” Id. at 595 (quoted source
omitted). Here, we do not have an
unforeseen problem. The parties drafted
terms directing how they would handle these situations. As important, the Von Schledorns tried for
about a year to get Flaherty to fulfill his obligations. The Von Schledorns' decision not to remedy
the problem themselves and to abandon the lease cannot be described as a sudden
or unexpected decision. We conclude
that the Von Schledorns' actions in this relationship do not fit into that
class of conduct which the Market Street Associates court
described as bad faith.
Lastly, we turn to
Flaherty's separate claim that the Von Schledorns had a duty to restore the
property to its original condition even in light of Flaherty's breach and
constructive eviction. Here, Flaherty points
to the following language:
Tenant shall, at its own cost and expense, throughout
the demised term, keep and maintain the entire demised premises in good
condition and repair .... Tenant
shall also use all reasonable precaution to prevent waste, damage or injury to
said demised premises. [Flaherty's
emphasis added.]
Flaherty
completes his argument with the following statement: “Regardless of anything else, it is clear that the Von
Schledorns, during the term of their tenancy, totally destroyed the premises
and left them in a total shambles and then, without repairing the damage,
unilaterally canceled the Lease.”
Nonetheless, we do not
agree that the language Flaherty cites required the Von Schledorns to restore
the property after Flaherty evicted them.
The force of the clause that Flaherty cites is limited by the terms “all
reasonable precaution.” The lease
states that the property will be used for an “automobile dealership.” Moreover, the affidavits from the parties
show that both parties knew the Von Schledorns would be renovating the
property. But, as we noted above, the
problems with the tanks interrupted the renovation process. So while Flaherty may believe that the
property is currently in disarray or “shambles,” we see no evidence in the
record demonstrating that the Von Schledorns did not take “reasonable
precautions” to prevent this from happening.
They acted reasonably when they tried to remedy the tank problem in the
manner that the lease specified.
By the Court.—Order
affirmed.
Not recommended for
publication in the official reports.