Aeroground, Inc. v. CenterPoint Properties Trust
Filing
Filed opinion of the court by Judge Flaum. AFFIRMED. Joel M. Flaum, Circuit Judge; Frank H. Easterbrook, Circuit Judge and John Daniel Tinder, Circuit Judge. [6540699-1] [6540699] [13-1956]
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐1956
AEROGROUND, INC.,
d/b/a Menzies Aviation,
Plaintiff‐Appellant,
v.
CENTERPOINT PROPERTIES TRUST,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 10-cv-00652 — Sharon Johnson Coleman, Judge.
____________________
ARGUED DECEMBER 4, 2013 — DECIDED DECEMBER 23, 2013
____________________
Before FLAUM, EASTERBROOK, and TINDER, Circuit Judges.
FLAUM, Circuit Judge. In 2007, two companies—Menzies
and CenterPoint—entered into a ten‐year lease for a
warehouse near O’Hare Airport. CenterPoint, the lessor,
owns the warehouse; Menzies, the lessee, operates an air
cargo handling business, which includes the use of 15,000‐
and 30,000‐pound forklifts. It did not take long for these
heavy forklifts to severely damage the concrete slab on
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which the machines operated. The parties dispute who is
responsible for fixing the damage, at a cost of about $1
million. Under the lease, Menzies is responsible for repairing
the warehouse’s “floor,” while CenterPoint is responsible for
repairing its “foundation.” Menzies sued. After a bench trial,
the district court concluded that the damage affected only
the surface of the concrete slab—i.e., it affected the slab’s
function as a floor, not its function as a foundation.
Therefore, Menzies was not entitled to recover. We affirm.
I. Background
Aeroground Inc., which does business as Menzies
Aviation (“Menzies”), operates an air cargo handling
business. CenterPoint Properties Trust (“CenterPoint”) is a
real estate investment trust that owns a warehouse near
O’Hare Airport. The facility is a single‐story structure—a
185,280 square‐foot warehouse built in 1998 or 1999, plus a
large addition built in 2007. Another company used the
building to store airplane parts from 1999 until 2006.
In February 2007, Menzies and CenterPoint entered into
a lease for the building. After a dispute, the parties mutually
terminated that lease and signed a new, ten‐year lease in
November 2007. Between February and November,
CenterPoint constructed various improvements to the
building, at Menzies’ request, including increasing the
number of dock doors from two to thirty‐eight and installing
45,000‐pound dock levelers. These improvements cost
CenterPoint about $1.4 million.
When Menzies began moving its air cargo handling
operations into the building in November 2007, the six‐inch
concrete slab did not exhibit any visible damage. By January
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2009, the concrete slab had begun to deteriorate. The
damage—“cracking, scaling of the concrete surface, and
raveling along contraction joints”—was not consistent with
typical wear and tear. The slab could not support Menzies’
heavy forklifts, which were typical of its field. Menzies told
CenterPoint about these problems in January 2009.
CenterPoint paid for some repairs (at a cost of about
$92,000), but then stopped doing so. CenterPoint did not
submit an insurance claim. The parties agree that the
concrete slab is so damaged that it must be replaced, at an
estimated cost of between $966,000 (the cost of a new,
identical floor) and $1.23 million (the cost of a new floor that
would permit heavy forklift operation).
As relevant here, Menzies sued CenterPoint for breach,
and CenterPoint counterclaimed. Both parties contended
that the other was responsible for replacing the concrete slab
and had breached the lease by failing to replace the slab.
After a bench trial, the federal district court held that neither
party was entitled to recover. The court found that the
concrete slab had a “dual nature as both floor and
foundation,” but “the damage at issue was related to the
slab’s function as a floor.” The damage was therefore
Menzies’ responsibility since Menzies is responsible for the
“floor”—not CenterPoint’s responsibility, which includes the
“foundation.” However, CenterPoint lost on its
counterclaim, because the lease required that it give timely
notice to Menzies if Menzies allegedly breached, and
CenterPoint did not do so. Only Menzies appeals.
II. Discussion
In an appeal from a bench trial, we review for clear error
the district court’s findings of fact and its applications of law
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to those findings of fact. Egan Marine Corp. v. Great Am. Ins.
Co. of New York, 665 F.3d 800, 811 (7th Cir. 2011). A finding is
“clearly erroneous” when, even though there is evidence to
support it, “the reviewing court on the entire evidence is left
with the definite and firm conviction that a mistake has been
committed.” Winforge, Inc. v. Coachmen Indus., 691 F.3d 856,
868 (7th Cir. 2012) (quoting United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948)). “The party alleging
error bears the burden of demonstrating that particular
factual findings were clearly erroneous.” Id. We review de
novo the district court’s interpretation of a contract as well
as its conclusion that a contract is ambiguous. BKCAP, LLC v.
CAPTEC Franchise Trust 2000‐1, 572 F.3d 353, 358 (7th Cir.
2009). If we find the contract ambiguous, then the district
court’s interpretation is a factual one, reviewed for clear
error. Wikoff v. Vanderveld, 897 F.2d 232, 238 (7th Cir. 1990).
Where, as here, our jurisdiction is based on diversity, the
resolution of substantive issues is determined by the
applicable state law. LaSalle Nat. Bank v. Serv. Merch. Co., 827
F.2d 74, 78 (7th Cir. 1987). The parties agree that Illinois law
applies. Under Illinois law, the interpretation of a lease “is
governed by the rules which govern contracts.” Midland
Mgmt. Co. v. Helgason, 158 Ill. 2d 98, 103 (1994). We therefore
apply Illinois principles of contract interpretation. The goal
of contract interpretation is to ascertain the parties’ intent,
and in so doing, we first look to “the plain and ordinary
meaning” of the contract language. Gallagher v. Lenart, 226
Ill. 2d 208, 233 (2007). We must construe the contract “as a
whole, viewing each part in light of the others.” Id. We also
must seek to give effect to “each clause and word used,”
without rendering any terms meaningless. Hufford v. Balk,
113 Ill. 2d 168, 172 (1986). The more specific provision of a
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contract governs where it arguably conflicts with a more
general provision. Grevas v. U.S. Fidelity & Guar. Co., 152 Ill.
2d 407, 411 (1992).
A. The terms of the lease
We begin by summarizing the lease’s terms. The lease
does not use the term “slab” or “concrete slab,” nor does it
define “floor” or “foundation.” The lease does state that the
permitted uses for the warehouse include air cargo handling
and storage. Moreover, Menzies “agree[d] to accept the
Premises in an absolutely ‘as is’ condition,” and CenterPoint
did “not make warranties” as to the premises. The lease
defines “Improvements” as the existing building and the
building expansion. The lease divides responsibility for
repairs as follows:
Section 7.1. Tenant’s Obligations. Except as
set forth in Section 7.2, Tenant assumes full
and sole responsibility for the condition,
operation, repair, alteration, improvement,
replacement, maintenance and management of
the Premises. … Except as set forth in Section
7.2, Tenant shall, at its sole cost and expense,
promptly perform all maintenance and
promptly make all necessary repairs and
replacements,
ordinary
as
well
as
extraordinary, foreseen as well as unforeseen,
in and to the Premises and any equipment now
or hereafter located in the Premises, including,
but not limited to, all floors, floor coverings,
windows, glass, plate glass, ceilings, … .
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Section
7.2.
Landlord’s
Obligations.
… Landlord shall maintain, repair and replace
the roof, exterior walls, foundation and
structural portions of the Improvements … and
all exterior portions of the Project. … Landlord
shall repair and replace the exterior walls, roof
and foundation of the building that is a part of
the Improvements. The cost of all repairs and
replacements under this Section … shall be the
sole responsibility of Landlord, except to the
extent such costs arise as a result of any act or
omission of Tenant … .
Section 9.1. Restoration. In the event the
Improvements shall be damaged or destroyed,
in whole or in part, Landlord covenants and
agrees that, unless otherwise provided in the
Ground Lease, Landlord shall repair, restore or
rebuild any such Improvements so damaged,
injured or partially destroyed, or erect, finish
and complete a like building … .
The lease also requires that Menzies carry several types of
insurance and that CenterPoint carry “insurance on all
Improvements against … all … risks of direct physical loss.”
To summarize, Section 7.1 makes Menzies responsible for
repairing “all floors,” while Section 7.2 (usually) makes
CenterPoint responsible for repairing the “foundation.”
CenterPoint is also responsible, under Section 9.1, for repairs
or reconstruction if the building is partially or totally
damaged. For the reasons explained below, we agree with
the district court that this lease is ambiguous, and that
CenterPoint is not responsible for repairing the slab.
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B. Section 7.1 vs. Section 7.2
The lease does not specifically define the floor or the
foundation, nor does it indicate how precisely to distinguish
between Section 7.1’s floor repair obligations and Section
7.2’s foundation repair obligations. When we consider the
ordinary meaning of the relevant terms, foundation means
“an underlying base or support; especially the whole
masonry substructure of a building.” MERRIAM‐WEBSTER
DICTIONARY ONLINE, available at http:// merriam‐
webster.com/dictionary (last visited December 19, 2013).
“Floor” means “the level base of a room”; “the part of a
room on which you stand.” Id.
The district court found that the evidence established
that the concrete slab had a “dual nature as both floor and
foundation.” It functioned as a floor because “[t]he slab is
the surface upon which [Menzies’] operations are conducted,
including the movement of cargo loads.” But Menzies
presented evidence that “the slab also has a structural
function: by connection to the building walls through the
dowel rods, it bears loads transferred from the walls.”1 The
court found that the damage at issue solely concerned the
“slab’s function as a floor.” And in their pre‐lawsuit
communications, both parties repeatedly referred to the
1CenterPoint argues that the slab does not function as a foundation, and
relies upon the trial testimony of the structural engineer who prepared
the structural drawings for the warehouse. This engineer testified at trial
that the concrete slab provides no vertical support for the walls or roof
and thus is not part of the foundation. However, he said that in some
cases, this type of concrete slab could provide horizontal support. He was
unsure whether it did in this case. Given this uncertainty, we cannot say
that the district court’s factual finding was clearly erroneous.
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condition of the “floor.” Menzies’ letter to CenterPoint had
the heading, “Floor Breaking Up,” and multiple Menzies
vice presidents referred to the “floor” in their emails to
CenterPoint.2 When a contract is ambiguous, it is permissible
to consider extrinsic evidence such as these pre‐lawsuit
communications. See Gallagher, 226 Ill. 2d at 233. Thus, we
find that Section 7.2 (which makes CenterPoint responsible
for repairing the foundation) is inapplicable because of the
meaning of the terms in conjunction with the district court’s
factual findings. The parties’ communications further
buttress this conclusion.
Menzies argues that the damage was in fact to the
foundation, but the district court found otherwise. Multiple
engineers testified at trial that the “foundation elements” of
the building were a perimeter trench‐footing set at four feet
below the concrete slab and drilled concrete piers set in the
ground, supporting the columns that hold up the roof. There
is no evidence of damage to these foundation elements. As a
result, the court’s determination is not clearly erroneous on
this record.
Menzies next contends in its brief that the parties meant
to allocate responsibility to CenterPoint for “the top, sides,
and bottom of the building.” This contention is imprecise,
however. CenterPoint was responsible for the outer shell of
the warehouse—the roof, exterior walls, and foundation—
2For example, Aeroground’s Senior Vice President, who signed the lease,
wrote in an email to CenterPoint: “We have never seen a floor break‐up
like this”; “[t]here is obviously a flaw with the floor”; and “they have
never seen a floor degrade in this manner.” Aeroground’s Regional Vice
President similarly wrote in an email, “we cannot accept your request to
take on the costs to any further repairs to the floor.”
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while Menzies was responsible for the inner shell of the
warehouse, including the floor and ceiling. Menzies’ chosen
term, “bottom,” could refer to either the floor or the
foundation. “Bottom” is not in the lease, though, and is less
precise than the lease’s terms. This argument asks us to
overlook the express terms of the lease (and the district
court’s factual findings), and is therefore unpersuasive.
Menzies also argues that the district court rewrote the
lease by introducing a “functionality” test to determine what
was the “floor” and what was the “foundation.” There are
multiple flaws with Menzies’ argument. First, in the district
court, Menzies suggested the use of a functionality test by
arguing that the concrete slab failed in its “ability to provide
support.” The district court adopted this analytical
approach, but its use was ultimately to Menzies’ detriment.
Second, the district court confronted multiple undefined
terms, and the dictionary definition actually pointed toward
functionality because something is a “foundation” if it
provides support. In other words, the district court’s
functionality test was a means of implementing the parties’
contract, because the parties chose to use a key term that is
defined by its function. Indeed, the district court’s analytical
method has further support when one considers other terms
in these two sections of the lease. Specifically, as noted
above, there is a parallelism in this part of the lease: one
party is responsible if there is damage to the floor or the
ceiling, while the other is responsible if there is damage to
the foundation or the roof. The parties intended, in most
instances, for Menzies to take care of the inside of the
building, while CenterPoint was responsible for the outside
and undergirding of the building. Since a concrete floor
inside could have weight‐bearing potential (or be connected
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to the outside), the parties’ division of responsibility
suggested a functional analysis.
Menzies argues that the concrete slab failed due to
various inadequacies that are “all attributable to
CenterPoint.” CenterPoint responds that it made $1.4 million
in changes to the warehouse, all at Menzies’ request, but that
Menzies failed to specify that it needed a thicker concrete
slab—even though Menzies inspected the warehouse
beforehand and knew the slab’s thickness. These arguments
are really about whether the premises were fit for heavy air
cargo handling operations. The district court addressed that
issue, and it is neither before us on appeal nor relevant to
any question that is. Therefore, we need not address these
arguments.
C. Section 7.1 vs. Section 9.1
Having concluded that Section 7.2 is inapplicable, the
remaining question is whether Section 7.1 or Section 9.1
applies. The former would make Menzies responsible for
floor repairs, while the latter renders CenterPoint
responsible for “damage.” The district court found these
sections “apparently inconsistent,” but reasoned that the
more specific provision (Section 7.1) prevailed over the more
general one (Section 9.1). Because Section 7.1 left Menzies
responsible, Menzies could not prevail in its suit.
We agree with the district court’s analysis. As noted, the
more specific provision of a contract governs where it
arguably conflicts with a more general provision. Grevas, 152
Ill. 2d at 411. As we have explained, where one provision is
general enough to include the specific situation to which the
other is confined, “the specific provision will be deemed to
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qualify the more general one, that is, to state an exception to
it.” United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied
Indus. & Serv. Workers Int’l Union v. NLRB, 544 F.3d 841, 859
n.10 (7th Cir. 2008). Menzies embraces this principle, but
argues that Section 9.1 is actually the more specific
provision. This argument is unconvincing, however. Section
9.1 refers generally to damage or destruction. By contrast,
Section 7.1 refers to thirty specific parts of the warehouse
that Menzies is responsible for maintaining and repairing.3
Looking to neighboring sections of the lease only
strengthens this reading: whereas Section 9.2 refers generally
to the “total or partial demise” of the warehouse, Section 7.2
refers specifically to CenterPoint’s responsibility to maintain
and repair the roof, exterior walls, and foundation. See Baker
v. Am.ʹs Mortg. Servicing, Inc., 58 F.3d 321, 327 (7th Cir. 1995)
(term in contract could “be understood only with reference
to the context in which it appears”) (applying Illinois law).
Menzies argues that CenterPoint should pay for the
“damage” to the concrete slab, and in making this argument,
3Section 7.1 states in relevant part: “Except as set forth in Section 7.2,
Tenant shall, at its sole cost and expense, promptly perform all
maintenance and promptly make all necessary repairs and replacements,
ordinary as well as extraordinary, foreseen as well as unforeseen, in and
to the Premises and any equipment now or hereafter located in the
Premises, including, but not limited to, all floors, floor coverings,
windows, glass, plate glass, ceilings, skylights, interior and demising
walls, doors, electrical systems, lighting fixtures and equipment,
plumbing systems and fixture, sprinkler systems, heating, ventilating
and air conditioning systems, loading docks, areas and doors, rail space
areas, fences and signs, connections, pipes, mains, water, sewer and
connections, and all other fixtures, machinery, apparatus, equipment and
appurtenances now or hereafter belonging to, connected with or used in
conjunction with the Premises.”
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Menzies seeks to draw upon the meaning of “damage” in
Rickher v. Home Depot, Inc., 535 F.3d 661, 667 (7th Cir. 2008).
But Menzies’ interpretation would have the effect of reading
several provisions out of the lease entirely. At a minimum, it
would render meaningless Sections 7.1 and 34.15,4 because
CenterPoint would need to repair “damage,” even if
Menzies was specifically responsible for that part of the
warehouse (like the floor). If it is possible to give effect to
“each clause and word” of the contract, we must do so.
Hufford, 113 Ill. 2d at 172. In this case, another reading is
possible, whereby every section retains significant meaning.
Namely, Section 9.1 provides that CenterPoint is
responsible if any Improvements are “damaged or
destroyed, in whole or in part.” Section 9.2 refers to “a total
or partial demise,” and makes CenterPoint responsible for
rebuilding a like building. Demise means to “die.” MERRIAM‐
WEBSTER DICTIONARY ONLINE, available at http:// merriam‐
webster.com/dictionary (last visited December 19, 2013). The
coupling of Sections 9.1 and 9.2 suggests that they concern
severe damage—the partial or total destruction of the
warehouse (e.g., the type of damage one associates with a
tornado), not just damage to an aspect of the building (e.g., a
door or the floor). Admittedly, Section 9.1 says “damaged or
destroyed, in whole or in part.” (emphasis added). We
4Section 34.15 states: “This Lease shall be deemed and construed to be a
‘net lease’ and Tenant agrees to pay all costs and expenses of every kind
and nature whatsoever, ordinary and extraordinary, arising out of or in
connection with the ownership, maintenance, repair, replacement, use
and occupancy of the Premises during the Term of this Lease, which,
except for the execution and delivery hereof, would otherwise have been
payable by Landlord.”
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acknowledge that our reading is not the only one possible,
but it gives effect to the parties’ terms in the sections at issue
in this case, as well as to their contract as a whole. Our
interpretation also accords with precedent by preserving
independent meaning for each part of the contract. Under
our reading, Menzies is responsible for the floor damage in
this case, under Section 7.1; CenterPoint is responsible for
damage to the outer shell of the building, under Section 7.2;
and CenterPoint is also responsible if the building is
destroyed or severely damaged, under Section 9.1. (We note
that damage can be severe and partial simultaneously; a
tornado could tear off the roof and lead to significant
damage, even though the structure remained mostly intact.)
Menzies next contends that “ambiguous language is not
sufficient to assign away the landlord’s responsibility for
structural repairs.” Under Illinois law, landlords are
presumed to be responsible for “structural” repairs to a
building, and contract provisions that shift such
responsibility to tenants must be plainly discernable. See
Kaufman v. Shoe Corp. of Am., 24 Ill. App. 2d 431, 436 (1960).
The district court found that this lease “plainly states that
the default repair and replacement responsibility lies with
the tenant,” and we agree. Cf. Rexam Bev. Can Co. v. Bolger,
620 F.3d 718, 726 (7th Cir. 2010). The fact that this lease
contains certain ambiguities does not negate the fact that it
plainly shifts repair responsibility to Menzies. Under the
lease, Menzies expressly “assumes full and sole
responsibility for the condition, operation, repair, alteration,
improvement, replacement, maintenance and management
of the Premises,” subject to specific exceptions in Section 7.2.
Menzies’ obligations extend to “extraordinary” and
“unforeseen” repairs and replacements as well. Accordingly,
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the district court’s interpretation is not clearly erroneous on
this record.
Menzies also argues that in situations of ambiguity, the
lease must be construed “most strongly” against the
landlord. NutraSweet Co. v. Am. Nat. Bank & Trust Co. of Chi.,
262 Ill. App. 3d 688, 695 (1994). However, subsequent cases
suggest that this “anti‐drafter” rule of construction is (1) a
rule of “last resort,” Alberto‐Culver Co. v. Aon Corp., 351 Ill.
App. 3d 123, 132 (2004), and (2) has no application where
two sophisticated business entities both participated in
drafting the agreement, id. In this case, the parties expressly
agreed in Section 34.8 of the lease that preparing the lease
was “a joint effort of the parties” and the resulting lease
should not “be construed more severely against one of the
parties than the other.” For these reasons, Menzies’
argument is unconvincing.
Finally, Menzies contends that the parties’ insurance
obligations support its interpretation. Menzies notes that,
under Article 8 of the lease, CenterPoint must maintain
insurance on all Improvements for all risks of direct physical
loss, while Menzies is not required to maintain such
insurance, although it is required to have insurance for
various other risks. As a result, Menzies claims that the
district court’s interpretation “unfairly imposes on Menzies
an uninsured risk of loss.” See Alliance to End Repression v.
City of Chi., 742 F.2d 1007, 1013 (7th Cir. 1984) (en banc)
(“Suppose that the result of reading a contract in a particular
way is that one of the parties assumed enormous risks and
got nothing in return; this would argue against the
reading.”). CenterPoint replies that we should read Articles
7, 8, and 9 together, which is sensible because we interpret
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the contract as a whole. Gallagher, 226 Ill. 2d at 233. And
Section 9.2, entitled “Insurance Deductible,” discusses
insurance “[i]n the event of either a total or partial demise of
the Improvements.” This section informs our reading of the
neighboring provisions and supports the interpretation
suggested above, under which CenterPoint is responsible
for—and insured for—severe damage. Accordingly, we are
unpersuaded by Menzies’ insurance‐related contention.
We therefore conclude that the specific provision that
makes Menzies responsible for repairing or replacing the
floor, Section 7.1, prevails over the general provision that
makes CenterPoint responsible for rebuilding if there is
damage or destruction, Section 9.1.
III. Conclusion
For the foregoing reasons, we AFFIRM.
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