Opinion
No. 2-569 / 01-0687
Filed April 4, 2003
Appeal from the Iowa District Court for Polk County, Robert A. Hutchison, Judge.
Albertson's, Inc. appeals from the district court's decision to award Miner's Inc. damages and attorney's fees in a declaratory judgment action brought to determine responsibility for property taxes under a purchase agreement. Miner's cross-appeals. REVERSED AND REMANDED.
Randall G. Horstmann and Anthony A. Longnecker of Nyemaster, Goode, Voigts, West, Hansell O'Brien, P.C., Des Moines, for appellant.
Robert C. Thomson and Mary E. Kiener of Grefe Sidney, P.L.C., Des Moines, for appellee.
Heard by Vogel, P.J., and Zimmer and Hecht, JJ.
Miner's Inc. (Miner's) sued Albertson's, Inc. (Albertson's) seeking recovery of a property tax credit taken by Albertson's at a closing on a purchase agreement for taxes assessed against three commercial properties. Later, Miner's amended its petition to include Fleming Companies, Inc. (Fleming) as a defendant. The district court ruled Miner's was entitled to recover $346,558 from Albertson's plus attorney's fees. On appeal, Albertson's contends (1) it is entitled to declaratory judgment in its favor regarding the tax proration issue, (2) the district court did not properly consider and decide its affirmative defenses of waiver and estoppel, (3) the court erred in determining the amount of damages awarded, and (4) the court erred in awarding attorney's fees to Miner's and the amount was excessive. On cross-appeal, Miner's argues (1) the court erred in calculating interest on the judgment, and (2) the court erred in determining the amount of attorney's fees to award Miner's. We reverse and remand.
I. BACKGROUND FACTS.
This lawsuit arises from a dispute over the responsibility for real estate taxes for three grocery store locations in Des Moines, Iowa. None of the parties to the lawsuit are owners of any of the three properties, but all are past or present lessees. The original owners of the grocery store operations first leased them to Scrivener, Inc. As a result of corporate mergers and acquisitions, Scrivener is now Fleming Companies, Inc.
Fleming occupied the properties until June 1995, when it subleased them to Miner's for the period from June 1, 1995 to June 20, 1998. Miner's is in the business of leasing commercial space for the purpose of operating retail grocery stores. At the time Miner's leased the properties, it also purchased the grocery store operations being run by Fleming at each of the locations covered by the sublease agreements. The actual owners of the real estate where the grocery stores are located were not parties to the sublease or purchase agreements. None of the three owners is a party to this lawsuit.
On April 30, 1998, Miner's entered into a purchase agreement with Albertson's pursuant to which Miner's sold the operating assets and inventory of the three grocery store operations to Albertson's. As part of the deal, Albertson's required that subleases running from Fleming to Miner's be terminated. As a result, when the purchase agreement closed, the subleases were terminated and Fleming assigned the three original leases (referred to by the parties as the "Prime Leases") directly to Albertson's.
Shortly before the closing on the purchase agreement, a disagreement arose between Miner's and Albertson's regarding the proper proration of real estate taxes assessed during the last year of Miner's sublease from Fleming. Albertson's maintained the real estate tax proration at the closing should be based upon real estate taxes assessedduring the period of actual occupancy of the stores by Miner's. Miner's, on the other hand, maintained it was only obligated to pay real estate taxes billed to it by Fleming during the period of Miner's actual occupancy under its subleases. The parties' difference of opinion was significant. If Albertson's was correct, Miner's was responsible for another year of property taxes. If Miner's was correct, it had already paid all the real estate taxes for which it was responsible.
Under Iowa law, real estate taxes are assessed for a fiscal year, from July 1 through the following June 30. Taxes are "due" when assessed, but are payable a year in arrears on a fiscal year basis. For example, taxes assessed against the properties at issue here for the fiscal year July 1, 1997 through June 30, 1998, were payable one-half in September 1998 and one-half in March of 1999.
The parties closed on the purchase agreement on Monday, June 22, 1998 with the dispute unresolved. The actual funds from the sale were wire-transferred the following day. Albertson's withheld $346,558 from the purchase price of approximately $4,000,000, representing Miner's pro rata share of the real estate taxes assessedagainst the properties under Iowa law in the preceding fiscal year, July 1, 1997 through June 30, 1998.
In October 1999, Miner's filed a declaratory judgment action against Albertson's, seeking to recover the real estate tax credit taken by Albertson's at the closing. Miner's asked the court to declare the rights and duties of Miner's and Albertson's under their purchase agreement signed April 30, 1998. Later, Miner's amended its petition seeking, in the alternative, recovery from Fleming, if it could not recover from Albertson's.
Following a bench trial, the district court found Albertson's improperly withheld money at the closing on the purchase agreement to pay real estate taxes assessed against the property during the preceding fiscal year, and ruled Miner's was entitled to judgment for $346,558 from Albertson's together with attorney's fees. The court also entered judgment in favor of Fleming on Miner's claim under its agreements with Fleming. Albertson's appeals, and Miner's cross-appeals.
II. SCOPE OF REVIEW.
Our review of declaratory judgment actions is determined by the manner in which the action was tried in district court. United Fire Cas. Co. v. Iowa Dist. Ct., 612 N.W.2d 101, 103 (Iowa 2000). This case was tried as a declaratory judgment at law. Thus, our review is for the correction of errors at law. Iowa R.App.P. 6.4.
III. TAX PRORATION ISSUE.
Albertson's first contends that it, rather than Miner's, is entitled to declaratory judgment on the tax proration issue. The dispute between Miner's and Albertson's regarding property taxes arose from the interpretation of the purchase agreement signed on April 30, 1998 and closed June 22, 1998. The purchase agreement was a commercial contract, negotiated at arms length, and reviewed by counsel for both parties. Therefore, we do not construe the contract against either party as the drafter. Fashion Fabrics of Iowa v. Retail Investor's Corp., 266 N.W.2d 22, 27 (Iowa 1978).
Paragraph 3(e) of the purchase agreement addresses the issue of property taxes. It provides, in pertinent part, as follows:
3(e) All real property taxes and assessments . . . required to be paid by tenant under a Store Lease or pursuant to any other documents encumbering the Real Property shall be paid by Seller or Buyer, whichever is the tenant under a given Store Lease at the time payment is due. Within sixty (60) days after the Closing Date (or within thirty (30) days after the end of any period of computation thereafter), an adjustment shall be made between Seller and Buyer to effect proration to the Closing Date of said payments in proportion to the number of days in the applicable period during which each was entitled to possession.
As noted earlier, Albertson's accepted an assignment of the Prime Leases for the various grocery store locations from Fleming on June 22, 1998. Paragraph 6.8 of each Prime Lease addresses the issue of tax payments. The paragraphs do not vary in any material respect. Each provides in relevant part as follows:
6.8 Taxes. At all times during the term hereof, . . . real estate taxes . . . levied or assessed against the Shopping Center or any part thereof by reason of the ownership thereof shall be paid and discharged by Lessor before becoming delinquent; . . . Lessee shall pay to the Lessor its proportionate share of such taxes . . . based on the Leased Space as a percentage of the total leasable area . . . Lessee's pro rata share of such taxes shall be paid to Lessor within sixty (60) days after the calculation of its share of such taxes based upon paid receipts. . . .
The record reveals the trial court determined that the terms of the Prime Leases required that the lessees reimburse the lessors for real estate taxes on a payable, and not an assessed, basis. Once real estate taxes were paid by the lessor, each Prime Lease required that the lessee reimburse the lessor for its pro rata share of the real estate taxes based upon the tenant's share of the overall square footage of the total leaseable area. The trial court also concluded the purchase and sublease agreements between Fleming and Miner's did not vary the tax obligations created in the Prime Leases. Fleming and Miner's subleases required Miner's to pay Fleming as rent 105% of all taxes payable by Fleming to the lessors during Miner's possession of the leased premises without regard to the time period for which those taxes were assessed. Relying on the terms of the Prime Leases between the property owners and Fleming, the sublease agreements between Fleming and Miner's, and the course of dealing between Fleming and Miner's, the trial court concluded that Miner's was responsible for taxes on a payable rather than an assessed basis under its purchase agreement with Albertson's. Accordingly, the court concluded Miner's was entitled to recover $346,558 from Albertson's plus attorney's fees.
On appeal, Albertson's argues the trial court failed to properly consider, construe, and interpret the purchase agreement between Miner's and Albertson's in reaching its decision. In particular, Albertson's claims the trial court's ruling fails to give effect to the last sentence of paragraph 3(e) of the purchase agreement's tax clause which states:
Within sixty (60) days after the Closing Date (or within thirty (30) days after the end of any period of computation thereafter), an adjustment shall be made between Seller and Buyer to effect proration to the Closing Date of said payments in proportion to the number of days in the applicable period during which each was entitled to possession.
We find merit in Albertson's argument that the trial court ended its analysis prematurely. We cannot assume any part of a contract is superfluous and we must attempt to give effective meaning to all terms of a contract. Smith Barney, Inc. v. Keeney, 570 N.W.2d 75, 78 (Iowa 1997). The proration language contained in the purchase agreement is not the same as the proration language contained in the Prime Leases or any of the subsequent subleases. When Miner's and Albertson's signed their contract, neither Albertson's nor Miner's was a party to the Prime Leases. Albertson's was never a party to Fleming's subleases to Miner's and Miner's was never a party to the Prime Leases. Miner's disagreement with Albertson's is separate and unrelated to the terms of the sublease agreement between Fleming and Miner's.
Miner's and Albertson's entered into a contract which provided, "an adjustment shall be made between Seller and Buyer to effect proration to the Closing Date of said payments [property taxes] in proportion to the number of days in the applicable period during which each is entitled to possession." We conclude the ordinary meaning of the terms "proration" and "possession" supports Albertson's interpretation of the parties' purchase agreement that the responsibility for real estate taxes between it and Miner's must be prorated on an assessed basis. See Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999) (stating language in a contract is interpreted according to its commonly accepted and ordinary meaning). Thus, under the terms of its contract with Albertson's, Miners was responsible for taxes assessed against the property through June 22, 1998. Those taxes would be payable in September of 1998 and March of 1999. Therefore, the tax credit taken by Albertson's at the time of closing of the purchase agreement, and used to reimburse its lessor for taxes paid on September 30, 1998, and March 31, 1999, was proper. Our resolution of this issue renders the other issues presented by the appeal and cross appeal moot.
IV. Conclusion.
We reverse the trial court's ruling granting judgment in favor of Miner's Inc. against Albertson's, Inc. including the award for attorney's fees and interest. We remand to the trial court to permit Albertson's to establish the amount of attorney's fees Albertson's is due as the prevailing party pursuant to the purchase agreement.