Las Americas, Inc., Appellant, vs. American Indian Neighborhood Development Corporation, f/k/a American Indian Business Development Corporation, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

  STATE OF MINNESOTA

IN COURT OF APPEALS

A04-505

 

Las Americas, Inc.,
Appellant,
 
vs.
 
American Indian Neighborhood Development Corporation,
f/k/a American Indian Business Development Corporation,
Respondent.

 

Filed November 30, 2004

Affirmed; motion granted in part and denied in part

Peterson, Judge

 

Hennepin County District Court

CT 02-21466

 

 

Jordan S. Kushner, 636 Sexton Building, 529 South Seventh Street, Minneapolis, MN  55415 (for appellant)

 

 

Keith S. Moheban, Leonard, Street and Deinard, 150 South Fifth Street, Suite 2300, Minneapolis, MN  55402 (for respondent)

 

 

            Considered and decided by Wright, Presiding Judge; Peterson, Judge; and Forsberg, Judge.*

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

In this appeal from a summary judgment in a lease dispute, appellant-tenant argues that (1) there were fact questions about whether its breach of the lease was prompted by respondent-landlord's failure to abide by its lease obligations; (2) any breaches of the lease by tenant were not material; and (3) landlord's acceptance of rent payments after tenant allegedly breached the lease entitles tenant to summary judgment on landlord's claim for termination of the lease.  Landlord seeks review of the district court's denial of summary judgment on tenant's breach-of-contract claim.  We affirm and grant tenant's motion to strike.

FACTS

            Lease terms

            Respondent American Indian Neighborhood Development Corporation (AINDC) is a nonprofit corporation.  Appellant Las Americas, Inc., owns a chain of grocery stores.  On September 17, 1997, Las Americas and AINDC entered into a ten-year commercial lease, under which Las Americas leased space to operate a grocery store in the Franklin Circle Shopping Center owned by AINDC.  The lease set the minimum rent at $3,000 per month during the first year of the lease and provided for a three-percent rent increase on October 1 of every following year.  The lease also required Las Americas to pay its pro rata share of utilities and services and real estate taxes and assessments.  The lease states that "[u]pon the occurrence of a Default as defined [in the lease], Landlord may elect . . . to cancel and terminate this lease."

            Las Americas was not charged any rent for the first six months of the lease term and was required to pay the rent for the seventh and eighth months upon executing the lease.  The lease required that, beginning June 1, 1998, minimum rent, together with equal monthly installments of the pro rata share of real estate taxes and assessments, "shall be paid without notice or demand" on the first day of each month. 

Failure to pay rent when due is a default under the lease.  Failure to conduct business in the leased premises, unless caused by destruction or condemnation, is also a default.  And failure by Las Americas "to perform or observe any of its other obligations under this Lease for a period of fifteen (15) days after written notice to [Las Americas]" is a default.

Rent Payments

AINDC sent rent-delinquency notices to Las Americas dated July 13, 1998; August 19, 1998; February 11, 1999; April 12, 1999; April 27, 1999; and May 10, 1999.  In June 1999, AINDC began an eviction action against Las Americas alleging that Las Americas was delinquent in rent payments in the amount of $9,165.63.  Less than one year later, Las Americas again became delinquent in rent payments, and AINDC sent rent-delinquency notices to Las Americas dated February 16, 2000; February 28, 2000; March 20, 2000; March 27, 2000; May 12, 2000; June 21, 2000; and July 11, 2000.  AINDC brought a second eviction action against Las Americas in May 2001 alleging that Las Americas was delinquent in paying rent due for April and May 2001, owed $4,086.95 for real estate tax adjustments, and $816.93 in late fees.  In June 2001, AINDC began a third eviction action against Las Americas based on its failure to pay rent for June 2001.  In April 2002, AINDC brought a fourth eviction action against Las Americas alleging that Las Americas owed $10,578.82 for rent for March and April 2002 and late fees in the amount of $620.59.  Beginning in November 2002, AINDC refused to accept rent payments from Las Americas and, beginning in January 2003, Las Americas' rent payments were deposited with the court.

Insurance Coverage

The lease requires Las Americas to maintain liability insurance naming AINDC as an additional insured and provide proof of insurance to AINDC.  Six times, between December 14, 1998, and April 12, 2000, AINDC requested in writing that Las Americas provide proof of insurance.  The fifth notice stated that "this letter will hereby serve as notice that you are now in default of your Lease Agreement."  As of the time of the district court's summary-judgment order, Las Americas had not produced proof of insurance coverage for the following periods:  September 17, 1997 to July 14, 1999; July 14, 2000 to July 1, 2001; and July 14, 2002 to October 15, 2002.

Cessation of Business

The lease requires Las Americas to "conduct its business in the Demised Premises continuously on all days and at all hours during which the Shopping Center is open."  On June 27, 2003, Las Americas closed its store, and, on July 10, 2003, AINDC notified Las Americas that, due to the cessation of business, AINDC was terminating Las Americas' right to possession.

Las Americas alleges that the store closing resulted from AINDC's failure to fulfill its obligations under the lease to perform repairs.  Selwin Ortega, Las Americas' president, stated in an affidavit that the store closed due to extensive water damage to the store, inventory, and equipment caused by the roof leaking.  Exhibit C to the lease required AINDC to repair roof leaks and perform other maintenance tasks before October 1, 1997.  Section 3.04 of the lease required Las Americas, within 60 days after delivery of possession, to give AINDC written notice of any alleged defects in its work and of any alleged variances of its work from the lease requirements.  Section 3.04 also provided that failure to give the required notice would operate as a waiver of defects or variances.   The parties dispute whether AINDC fulfilled its obligation to perform repairs under exhibit C, whether Las Americas complied with the notice requirements of section 3.04, and which party was responsible for repairing the roof after AINDC fulfilled its initial obligation under exhibit C to repair roof leaks.

Las Americas brought a breach-of-contract action against AINDC, alleging that AINDC breached the lease by failing to fulfill its obligation to make repairs; denying adequate access to the parking lot during repavement; denying it access to a loading dock; failing to install natural gas lines needed to operate a deli; and failing to properly maintain and repair the air conditioner.  AINDC filed a counterclaim seeking damages and cancellation and termination of the lease for alleged lease violations by Las Americas, including late rent payments, failure to provide proof of insurance, cessation of business operations, failure to pay utility charges when due, overcharging the Women, Infants, and Children (WIC) program, and committing health and safety violations.

The parties filed cross-motions for summary judgment.  Both parties sought summary judgment on the eviction action, and AINDC also sought summary judgment on Las Americas' breach-of-contract action.

The district court granted summary judgment for AINDC on the eviction action and otherwise denied the parties' summary-judgment motions.  The district court determined that Las Americas defaulted under the lease by making late rent payments and failing to provide proof of insurance.  The district court also determined that Las Americas defaulted by ceasing business operations but that the reason for the cessation of business was disputed.  The district court determined that the following acts were not defaults under the lease:  nonpayment or late payment of utility bills because the record was unclear as to whether Las Americas failed to pay its utility bills within fifteen days of written notice by AINDC; and overcharging the WIC program because, even if that constituted using the property for an illegal purpose, there was no evidence that Las Americas continued overcharging WIC after a written objection by AINDC.

  This court dismissed Las Americas' initial appeal because no judgment had been entered.  The district court then issued an order finding no just reason for delay and directing the immediate entry of judgment on the eviction action.  Judgment was entered, and this appeal is from the judgment for AINDC in the eviction action.  AINDC filed a notice of review seeking review of the denial of its summary judgment motion on Las Americas' breach-of-contract action.
D E C I S I O N

 

1.         Las Americas argues that the district court erred in granting summary judgment for AINDC in the eviction action.  On appeal from a summary judgment, appellate courts

review whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  We view the evidence in the light most favorable to the party against whom summary judgment was granted.  We review de novo whether a genuine issue of material fact exists.  We also review de novo whether the district court erred in its application of the law.

 

Star Ctrs., Inc. v. Faegre & Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002) (citations omitted).  "Eviction" is defined as "a summary court proceeding to remove a tenant or occupant from or otherwise recover possession of real property."  Minn. Stat. § 504B.001, subd. 4 (2002).

The district court determined that Las Americas defaulted under the lease by making late rent payments and failing to provide proof of insurance.  The district court also determined that Las Americas defaulted by ceasing business operations but that the reason for the cessation of business was disputed.

            Citing Space Center, Inc. v. 451 Corp., 298 N.W.2d 443, 451 (Minn. 1980), and MTS Co. v. Taiga Corp., 365 N.W.2d 321, 327 (Minn. App. 1985), review denied (Minn. June 14, 1985), Las Americas argues that a party who first breaches a contract cannot sue on the basis of a subsequent, resulting breach.  In Space Center, which involved a lease with a purchase option, the vendee/tenant withheld rent after the vendor/landlord repudiated the purchase and option agreement.  298 N.W.2d at 448, 451.  The supreme court concluded that the vendor/landlord could not rely on the vendee/tenant's breach of the lease to terminate the purchase agreement and avoid liability for its own prior total breach.  Id. at 451.  The supreme court also concluded that the vendor/landlord's failure to pay real estate taxes entitled the vendee/tenant to pay them and withhold rents for that purpose, but that the vendee/tenant "was not entitled to withhold rents in excess of the taxes due, and consequently [was] liable for damages for breach of the lease."  Id. at 452.

            In MTS, this court applied the rule "that a party cannot raise to its advantage a breach of contract against another party when it has first breached the contract itself," and stated:

While this rule should not apply in every case to prevent the initial breaching party from seeking a remedy for another party's subsequent breach, in this case the rule has particular force.  First, at the time MTS brought and tried this action it was still breaching the restaurant agreement.  Second, Taiga's decision to sell alcoholic beverages directly resulted from MTS's initial breach of the agreements.  In effect, Taiga simply supplied an essential service for its business which MTS had promised, but failed, to provide.  To declare Taiga in breach of the contract under those circumstances, thus clearing the path for Taiga's removal from the premises, is an inequitable result.  We hold that MTS may not enforce the restrictive use clause under the circumstances of this case.

 

365 N.W.2d at 327.

 

Las Americas argues that the late rent and utilities payments resulted from breaches of the lease by AINDC, particularly AINDC's failure to adequately repair the roof.  The district court rejected Las Americas' argument, explaining:

In this case, there are two factors which weigh heavily against an application of the [MTS] rule.  First, there is scant evidence, if any, that AINDC's alleged failure to repair the roof antedated either Las Americas' failure to obtain insurance naming AINDC as an additional insured or Las Americas' earliest late rent payments.  Second, it is undisputed that Las Americas breached several of its obligations under the Lease, while there are questions of fact concerning whether AINDC breached any of its obligations under the Lease.  For those reasons, the Court will not apply the rule to preclude AINDC from terminating the lease.

 

            The authority cited by Las Americas does not show that the district court erred in declining to apply the rule prohibiting a breaching party from seeking a remedy for another party's subsequent breach.  Both Space Center and MTS are distinguishable from this case.  Here, there was not a total contract repudiation by AINDC, and, although the record contains evidence that at least some late rent payments occurred during the same time period as complaints about the leaking roof, the evidence is insufficient to create a fact issue as to whether the late rent payments resulted from AINDC's failure to adequately repair the roof.  Also, Las Americas cites no authority showing that withholding rent and utility payments was a legally permissible remedy for any failure by AINDC to adequately fix the roof.  See Space Center,298 N.W.2d at 452 (concluding that the vendor/landlord's failure to pay real estate taxes entitled the vendee/tenant to pay them and withhold rents for that purpose but that the vendee/tenant was not entitled to withhold rents in excess of the taxes due and consequently was liable for damages for breach of the lease).

            Las Americas next contends that it cannot be evicted because it did not materially breach the lease.  Generally, the materiality of a breach is a fact question.  See Cloverdale Foods of Minn., Inc. v. Pioneer Snacks, 580 N.W.2d 46, 49 (Minn. App. 1998) (concluding that evidence was sufficient to raise a fact question regarding whether breach of lease was material).  The breach of a lease must be material to warrant termination or rescission of the lease.  Id.  If a material breach has occurred, rescission is appropriate "[w]here the injury . . . is irreparable, or where the damages would be inadequate or difficult or impossible to determine."  Johnny's, Inc. v. Njaka, 450 N.W.2d 166, 168 (Minn. App. 1990).  A material breach is "[a] substantial breach of contract, usu[ally] excusing the aggrieved party from further performance and affording it the right to sue for damages."  Black's Law Dictionary 183 (7th ed. 1999).

            Las Americas argues that late payment of rent is only a minor lease violation.  But even if the numerous late rent payments that occurred in this case, beginning within one month of monthly rent payments becoming due under the lease, could not constitute a material breach, the district court also concluded that Las Americas breached the lease by failing to provide proof of insurance naming AINDC as an additional insured within fifteen days of a written request for such proof.  The lease requires Las Americas to maintain liability insurance naming AINDC as an additional insured and provide proof of insurance to AINDC.  Failure by Las Americas "to perform or observe any of its . . .  obligations under this Lease for a period of fifteen (15) days after written notice to [Las Americas]" is a default.  The lease also states, "Upon the occurrence of a Default as defined [in the lease], Landlord may elect . . . to cancel and terminate this lease."  Six times, between December 14, 1998, and April 12, 2000, AINDC requested in writing that Las Americas provide proof of insurance.  The fifth notice stated that "this letter will hereby serve as notice that you are now in default of your Lease Agreement."

Because the lease defines defaults and expressly provides that the lease may be cancelled and terminated upon the occurrence of a default, the parties' agreement itself supports eviction.

[A] lease is a form of contract.  Unambiguous contract language must be given its plain and ordinary meaning, and shall be enforced by courts even if the result is harsh.  When a lease empowers a landlord to evict for certain actions, then the trial court shall determine . . . whether the facts alleged in the complaint are true and whether those facts, under the terms of the lease, support termination of the lease and eviction.

 

Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn. 1999) (citations omitted).

We conclude that as a matter of law the failure to provide proof of insurance was a material breach of the lease.  The lease required Las Americas to maintain liability insurance with coverage limits of at least $1 million with respect to any one person, $2 million with respect to any one accident, and $1 million with respect to property damage.  Las Americas' failure to maintain the required liability insurance exposed AINDC to a potentially significant liability risk.  Had the risk materialized, it could not have been corrected by Las Americas paying insurance premiums or obtaining coverage after the fact.

Las Americas argues that the failure to provide proof of insurance was not a material breach because it always had the required coverage in effect.  But the evidence cited by Las Americas does not support this claim.  Because the failure to provide proof of insurance was a material breach warranting eviction, we do not address the other breaches allegedly committed by Las Americas.

            Las Americas argues that by accepting rent payments that had been deposited into the court, AINDC waived any right to terminate and cancel the lease.

Waiver may be asserted as an affirmative defense to [an eviction] action.  The general rule is that a landlord's subsequent acceptance of rent acts to waive his or her right to rely on any prior alleged breaches of the lease known at that time as a basis for the unlawful detainer action.

 

Priordale Mall Investors v. Farrington, 411 N.W.2d 582, 584 (Minn. App. 1987) (citation omitted), review denied (Minn. Sept. 24, 1986).  An exception to the general rule applies when the lease contains a clause expressly stating that acceptance of rent does not constitute a waiver of the existing or any preceding breach.  Id. at 585.  The lease here contains a nonwaiver clause, which states, "No action or inaction by Landlord shall constitute a waiver of Default."  This clause does not expressly address acceptance of rent, but it does address any action by the landlord, and accepting rent is an action of the landlord.

"[E]ven absent such a clause the landlord's conduct after the notice of termination of tenancy has been given must manifest some intent to waive [the] notice [of termination]."  Id. (quotation omitted).  The record shows that by accepting rent AINDC did not manifest an intent to waive Las Americas' breaches as a basis for the unlawful detainer action.  The order permitting AINDC to submit payments from Las Americas to the court states:

Submission of such payments into Court shall be deemed equivalent to submission of such payment to AINDC for purposes of Las Americas' compliance with its obligations to pay rent under the Shopping Center Lease, to the extent Las Americas has such obligation, but such payment shall not give rise to any claim of waiver.

 

            Also, after this action was commenced, AINDC sought an order granting it restitution and again made it clear that it did not intend to waive Las Americas' breaches.  In a hearing regarding that order, AINDC's counsel stated,

I have a second matter . . . which is, we have since November by stipulation had Las Americas pay rent into Court, primarily because we wanted to cancel the lease and because we did not want to hear any argument as to a waiver by accepting rent.

 

            We conclude that AINDC did not waive any right to terminate and cancel the lease by accepting rent payments that had been deposited into the court. 

            2.         AINDC seeks review of the district court's denial of its summary-judgment motion on Las Americas' breach-of-contract action.  Unless the denial of a motion for summary judgment is based upon a claim of immunity, "[a]n order denying summary judgment is otherwise generally not appealable, and interlocutory review is not appropriate on issues which do not involve immunity from suit."  McDonough v. City of Rosemount, 503 N.W.2d 493, 496 (Minn. App. 1993), review denied (Minn. Sept. 10, 1993).  We find no reason to depart from the general rule in this case.

3.         Las Americas moved to strike from the appendix to AINDC's brief (1) excerpts from Ortega's testimony in an administrative hearing relating to the forfeiture of Las Americas' WIC authorization and (2) Las Americas' bankruptcy petition and dismissal order.  "The papers filed in the [district] court, the exhibits, and the transcript of the proceedings, if any, shall constitute the record on appeal in all cases."  Minn. R. Civ. App. P. 110.01.

            AINDC does not dispute that the testimony was not part of the record before the district court.  Rather, AINDC cites In re Livingood, 594 N.W.2d 889 (Minn. 1999), to argue that this court can consider the testimony.  Livingood applies the rule that this court has discretion to supplement the record "when the evidence is documentary evidence of a conclusive nature (uncontroverted) which supports the result obtained in the lower court."  Id. at 895-96.  We decline to exercise our discretion to supplement the record in this case and grant the motion to strike the testimony.

            AINDC also does not dispute that the bankruptcy petition and dismissal order were not part of the record before the district court.  "Appellate courts may . . . consider cases, statutes, and other publicly available legal resources that were not presented to the district court."  Podvin v. Jamar Co., 655 N.W.2d 645, 648 (Minn. App. 2003).  Because the bankruptcy petition and dismissal order are publicly available legal resources, this court may consider them.  Therefore, the motion to strike these documents is denied.

            Affirmed; motion granted in part and denied in part.

*   Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.