MONSANTO COMPANY v. ARE-108 ALEXANDER ROAD, LLC

Filing 52

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE signed by MAG/JUDGE L. PATRICK AULD on 03/25/2013. RECOMMENDED that Plaintiff's Motion for Summary Judgment (Docket Entry 20 ) be granted in that the Court should : enter judgment declaring that: Plaintiff has no obligation to pay Base Rent during the two Term Extensions under the Lease; Plaintiff is not in default for failing to pay such Base Rent; Defendant is not entitled to take any adverse action aga inst Plaintiff for any failure to pay such Base Rent; and Plaintiff is entitled to return of all Base Rent, late fees, and interest paid under protest to Defendant; enter judgment awarding monetary damages for all amounts of Base Rent and relate d charges paid under protest by Plaintiff to Defendant in connection with the Lease, plus prejudgment interest on the amount of that award; and enter judgment awarding Plaintiff its attorneys' fees and costs pursuant to Section 44(k) of the Lease as permitted by N.C. Gen. Stat. § 6-21.2(2).(Taylor, Abby)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

MONSANTO COMPANY,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
ARE-108 ALEXANDER ROAD, LLC,
Defendant.

1:10CV898

MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
This

action

comes

before

the

undersigned

United

States

Magistrate Judge for a recommended ruling on Plaintiff’s Motion for
Summary Judgment (Docket Entry 20).

(See Docket Entry dated June

24, 2011; see also Docket Entry dated Nov. 19, 2010 (referring case
to this Court’s Amended Standing Order 30).)

For the reasons that

follow, the instant Motion should be granted.
BACKGROUND
This action arises out of a dispute regarding the rent payable
under a lease of property in Durham County, North Carolina.

(See

Docket Entry 1.) Defendant, as landlord, entered into the Phase 1B
Lease Agreement (“Lease”) with tenant Paradigm Genetics, Inc.
(“Paradigm”) on April 3, 2000.

(See Docket Entry 47-1 at 2.)1

The

term of the Lease extended from November 1, 2000, through October
31, 2010 (“Term”) and provided for a base rent “equal to $315,000,
payable in equal monthly installments equal to $26,250.00”

1

(“Base

At the time it originally entered into the Lease, Defendant
operated as ARE-104 Alexander Road, LLC. (See Docket Entry 47-1 at
2.)

Rent”).

(See id. at 3.)

Section 41 of the Lease gave Paradigm two

consecutive rights to extend the Term of the Lease for five years
each (each, a “Term Extension”) (see id. at 37) and provided that,
“[d]uring any Term Extension, no Base Rent . . . shall be payable”
(id.). Paradigm assigned the Lease to Plaintiff on March 23, 2005.
(See Docket Entry 47-2 at 2.)2

In light of that assignment,

Plaintiff and Defendant entered into an amendment to the Lease on
May 9, 2005 (“First Amendment”).
makes

clear

that

Plaintiff

(See id.)

retained

the

The First Amendment
rights

Extensions as provided by Section 41 of the Lease.

to

the

Term

(See id. at 7.)

On November 14, 2007, with the stated purpose of “provid[ing]
for additional options to extend the Term and amend the parking
provisions of the Lease,” Plaintiff and Defendant entered into a
second amendment to the Lease (“Second Amendment”).
47-3 at 2.)

(Docket Entry

The Second Amendment provides that, “[f]ollowing the

exercise by [Plaintiff] of the existing 5-year extension options
under Section 41 of the Lease,” Plaintiff “shall have 2 consecutive
rights (each, an ‘Additional Extension Right’) to extend the Term
of this Lease [(each, an ‘Additional Extension Term’)] . . . .”
(Id.)

The

Second

Amendment

further

provides

that,

“[u]pon

commencement of any Additional Extension Term, Base Rent shall be
payable at the Market Rate” and that “‘Market Rate’ shall mean the
then market rental rate as determined by [Defendant] and agreed to

2

Paradigm Genetics, Inc. had changed its name to Icoria, Inc.
by the time of that assignment to Plaintiff. (See Docket Entry 1,
¶ 8.)
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by [Plaintiff], which shall in no event be less than the Base Rent
payable as of the date immediately preceding the commencement of
such Additional Extension Term increased by 103% multiplied by such
Base Rent.”

(Id.)

In October 2009, Plaintiff gave Defendant notice that it was
exercising its right to the first Term Extension under Section 41
of the Lease.

(Docket Entry 21 at 7.)

commence on November 1, 2010.

That Term Extension was to

(See Docket Entry 47-1 at 3, 37.)

On April 9, 2010, Defendant sent a letter to Plaintiff informing
Plaintiff that it would have to pay more than $38,000 per month in
Base Rent beginning on November 1, 2010, and more than $2.4 million
over the first five-year Term Extension.

(See Docket Entry 1-1.)

On April 28, 2010, Plaintiff responded with its understanding that
it did not have to pay Base Rent during the Term Extension under
the Lease.

(See Docket Entry 1-2.)

Defendant then sent a letter

to Plaintiff asserting that the Second Amendment reflected an
agreement by the Parties to modify the Lease such that Base Rent
would be required during the Term Extensions. (See Docket Entry 13.)

On November 1, 2010, Plaintiff paid all amounts due under the

Lease with the exception of Base Rent.

(See Docket Entry 1, ¶ 28.)

On November 15, 2010, counsel for Defendant sent a Notice of
Default demanding payment of the Base Rent, a late fee, and
interest under the Lease for November 2010 and threatening to
commence legal proceedings.

(See Docket Entry 1-4.)

paid the Base Rent under protest.
instant action followed.
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Plaintiff

(See Docket Entry 1-5.)

The

Plaintiff seeks:
(1)

“A judgment declaring that (a) [Plaintiff] has no obligation
to pay Base Rent during the two Term Extensions under the
[Lease]; (b) [Plaintiff] is not in default under [its leases
with Defendant] for not paying such Base Rent; (c) [Defendant]
is not entitled to take any adverse action against [Plaintiff]
for not paying such Base Rent; and (d) [Plaintiff] is entitled
to return of all Base Rent, late fees, and interest paid under
protest to [Defendant]” (Docket Entry 1 at 12);

(2)

“A judgment for monetary damages in an amount to be determined
at trial, which amount shall include all amounts of Base Rent
and related charges paid under protest by [Plaintiff] to
[Defendant] in connection with the [] Lease, plus prejudgment
interest on the amount of the judgment” (id.);

(3)

“An award of its attorneys’ fees and costs pursuant to Section
44(k) of the [] Lease and as otherwise permitted by law”
(id.); and

(4)

“Such other and further relief as the Court may deem just and
proper” (id.).
Before the Parties engaged in discovery, Plaintiff filed the

instant Motion for Summary Judgment, contending that, “because the
provisions [of the Lease] are unambiguous and the [L]ease is fully
integrated, no discovery is needed to determine the intent of the
[P]arties, nor should it be allowed.”

(Docket Entry 21 at 1.)

Defendant responded in opposition that “documents produced by
[Plaintiff] and the depositions of [Plaintiff] witnesses (and any
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identified third parties) are relevant to this matter and would be
used to properly and full [sic] oppose [Plaintiff’s] [M]otion for
[S]ummary

[J]udgment.”

(Docket

Entry

31

at

9.)

Moreover,

Defendant contended that the contractual terms are unclear and/or
ambiguous, such that discovery “should be permitted as regarding
the proper interpretation and intent of the interrelated [L]ease
provisions

(and

[P]arties.”

[L]ease

(Id.)

amendments)

in

dispute

between

the

The undersigned stayed discovery “pending a

determination by the Court of the threshold issue . . . of whether
an unambiguous contract exists such that the Court can resolve the
instant action without resort to materials outside the four corners
of the contract . . . .”

(Minute Order dated July 14, 2011.)
LEGAL STANDARD

“The [C]ourt shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
P. 56(a).

In considering that question, the Court “may not make

credibility determinations or weigh the evidence.”
Sanderson

Fed. R. Civ.

Plumbing

Prods.,

Inc.,

530

U.S.

133,

Reeves v.
150

(2000).

However, “unsupported speculation is not sufficient to defeat a
summary judgment motion if the undisputed evidence indicates that
the other party should win as a matter of law.”

Francis v. Booz,

Allen & Hamilton, Inc., 452 F.3d 299, 308 (4th Cir. 2006).
To the extent the Court must draw conclusions about matters of
North Carolina contract law in evaluating Plaintiff’s Motion for

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Summary Judgment,3 “the highest court of the state is the final
arbiter

of

what

is

state

law.

When

it

has

spoken,

its

pronouncement is to be accepted by federal courts as defining state
law unless it has later given clear and persuasive indication that
its pronouncement will be modified, limited or restricted.”
v. American Tel. & Tel. Co., 311 U.S. 223, 236 (1940).

West

However,

“[a] state is not without law save as its highest court has
declared it.
and

acted

There are many rules of decision commonly accepted

upon

by

the

bar

and

inferior

courts

which

are

nevertheless laws of the state although the highest court of the
state has never passed upon them.”

Id.

Accordingly, “it is the

duty of [a federal court facing a question of state law] to
ascertain from all the available data what the state law is and
apply it . . . .”

Id. at 237.

“Where an intermediate appellate

state court rests its considered judgment upon the rule of law
which it announces, that is a datum for ascertaining state law
which is not to be disregarded by a federal court unless it is
convinced by other persuasive data that the highest court of the
state would decide otherwise.”

Id.

As it relates to the instant matter:

3

The Parties appear in agreement that, where the Court must
apply state law, North Carolina law governs. (See Docket Entry 21
at 10-11; Docket Entry 31 at 9-12.) Moreover, the Lease provides
that “[c]onstruction and interpretation of this Lease shall be
governed by and construed and enforced in accordance with the
internal laws of the state in which the Premises are located,
without regard to choice of law principles of such state.” (Docket
Entry 47-1 at 41.)
-6-

“[i]t is the general law of contracts that the purport of
a written instrument is to be gathered from its four
corners, and the four corners are to be ascertained from
the language used in the instrument. When the language
of the contract is clear and unambiguous, construction of
the agreement is a matter of law for the court and the
court cannot look beyond the terms of the contract to
determine the intentions of the parties.
However,
extrinsic evidence may be consulted when the plain
language of the contract is ambiguous. Whether or not
the language of a contract is ambiguous is a question for
the court to determine. In making this determination,
words are to be given their usual and ordinary meaning
and all the terms of the agreement are to be reconciled
if possible.”
Stovall v. Stovall, 205 N.C. App. 405, 410, 698 S.E.2d 680, 684
(2010) (quoting Lynn v. Lynn, ___ N.C. App. ___, ___, 689 S.E.2d
198, 204-05 (2010)).
In this context, “[a]n ambiguity exists in a contract when
either the meaning of words or the effects of provisions is
uncertain or capable of several reasonable interpretations . . .
[or] where the language of a contract is fairly and reasonably
susceptible
parties.”

to

either

of

the

constructions

asserted

by

the

Myers v. Myers, ___ N.C. App. ___, ___, 714 S.E.2d 194,

198 (2011) (internal quotation marks omitted).

In addition, “‘[a]

latent ambiguity may arise where the words of a written agreement
are plain, but by reason of extraneous facts the definite and
certain application of those words is found impracticable.’”

Id.

(quoting Miller v. Green, 183 N.C. 652, 112 S.E. 417, 418 (1922)).
In other words, “[e]ven though words in a lease seem clear and
unambiguous, a latent ambiguity exists if their meaning is less
than certain when viewed in the context of all the surrounding

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circumstances.”

Alchemy Commc’ns Corp. v. Preston Dev. Co., 148

N.C. App. 219, 224, 558 S.E.2d 231, 234 (2002).
DISCUSSION
On the instant facts, the language of the Lease, as read in
conjunction with the First and Second Amendments, is clear and
unambiguous.

Section 41 of the original Lease provides for the

right of the Term Extensions without payment of Base Rent.
Docket Entry 47-1 at 37.)

(See

The First Amendment confirms that

Plaintiff retained that right after assignment from Paradigm. (See
Docket Entry 47-2 at 7.)

The Second Amendment addresses only the

payment of Base Rent during the subsequent Additional Extension
Terms.

(See Docket Entry 47-3 at 2.)

Simply put, no language in

the Second Amendment reflects modification of the terms of Section
41 of the Lease.
Defendants urge the Court to find the Lease ambiguous based in
part on the language of Section 1(a) of the Second Amendment (see
Docket Entry 31 at 13), which provides:
[Plaintiff] shall have 2 consecutive rights (each an
‘Additional Extension Right’) to extend the Term of this
Lease, consisting of 1 right to extend the Term of this
Lease for a period of 10 years, and 1 final right to
thereafter further extend the Term of this Lease for a
period that expires on November 30, 2024 . . . on the
same terms and conditions as this Lease (other than Base
Rent) by giving [Defendant] written notice of its
election to exercise each Additional Extension Right at
least 9-months prior, and no earlier than 12 months
prior, to the expiration of, as applicable, the last 5year Extension Term provided for in Section 41 of the
Lease, or the prior Additional Extension Term.
(Docket Entry 47-3 at 2 (emphasis added).)

In Defendant’s view,

“[b]y the specific reference to the existence of Base Rent at the
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time of the potential exercise of the Additional Extension Right in
2020, the Second Amendment clarifies that Base Rent is being paid
by [Plaintiff] to [Defendant] immediately prior to the exercise of
any Additional Extension Right.”

(Docket Entry 31 at 13.)

The

language, however, does not support Defendant’s position as it
merely indicates that the Base Rent payable during the Additional
Extension Terms will differ from that payable during the original
Lease without addressing the Base Rent payable during the Term
Extensions.4
Defendant also argues that the Lease is ambiguous because the
Base Rent for the Additional Extension Terms adopts a floor based
on “the Base Rent payable as of the date immediately preceding the
commencement of such Additional Extension Term” (Docket Entry 47-3
at 2), such that the Second Amendment contemplates the payment of
Base Rent during the Term Extensions.

(See Docket Entry 31 at 14.)

The fact that Defendants may have negotiated an ineffectual floor
regarding

any

Additional

Extension

Right

does

not

create

an

ambiguity in the face of otherwise clear provisions establishing
that Plaintiff had no obligation to pay Base Rent during earlier
Term Extensions.

The Parties “should be entitled to contract on

their own terms without the indulgence of paternalism by the courts
in the alleviation of one side or another from the effects of a bad

4

Plaintiff “acknowledges that it is obligated to pay Base
Rent during the Additional Extension Terms (after the initial Term
Extensions) under [the Lease].” (Docket Entry 21 at 6.)
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bargain.”

Blaylock Grading Co. v. Smith, 189 N.C. App. 508, 511,

658 S.E.2d 680, 682 (2008) (quotation marks omitted).
Finally, Defendant points to the provisions of the Second
Amendment which state that, “[i]n the event of any conflict between
the provisions of this Second Amendment and the provisions of the
Lease, the provisions of this Second Amendment shall prevail.
Whether or not specifically amended by this Second Amendment, all
of the terms and provisions of the Lease are hereby amended to the
extent necessary to give effect to the purpose and intent of this
Second Amendment.” (Docket Entry 47-3 at 6.)

However, as noted,

the language at issue does not present a conflict between the Lease
and the Second Amendment, nor should the Court alter the Lease’s
language based on Defendant’s supposed “purpose and intent” which
Defendant

failed

to

reflect

in

the

bargained-for

contractual

language.

Thus, the cited provisions of the Second Amendment do

not support Defendant’s position.
In essence, Defendant asks the Court to read into the Lease
(and

the

Second

Amendment)

contractual

contractual language does not warrant.

provisions

that

the

As Plaintiff notes (see

Docket Entry 42 at 9-10), Defendant appears to highlight the
deficiency of its own argument in its briefing with the following
statement: “Most tellingly, there is absolutely no mention in the
[P]arties’ Second Amendment – or in any of the extensive, detailed
negotiations leading up to the execution of the Second Amendment that [Plaintiff] would not pay Base Rent to [Defendant] during the
[Term Extensions] through 2020.”
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(Docket Entry 31 at 17.)

In

fact, the Second Amendment lacks any provision regarding the
payment of Base Rent during the Term Extensions, whereas the Lease
and First Amendment clearly address that subject.
Entry 47-3.)

(See Docket

Accordingly, given the Lease’s clear language that

Base Rent is not payable during the Term Extensions (see Docket
Entry 47-1 at 37), along with the First Amendment’s confirmation of
that arrangement (see Docket Entry 47-2 at 7), and the Second
Amendment’s lack of any language altering (or even addressing) the
same, this Court should conclude that the Lease, as read in
conjunction with the First and Second Amendments, establishes, on
its face, that Plaintiff does not owe Defendant Base Rent during
the Term Extensions.5

5

Plaintiff’s brief also contends that a finding in its favor
would entitle it to attorney’s fees under Section 44(k) of the
Lease. (See Docket Entry 21 at 20; see also Docket Entry 47-1 at
41.)
Section 44(k) provides that, “[i]f either [Plaintiff] or
[Defendant] reasonably seeks legal services with respect to the
proper interpretation . . . of this Lease, the party receiving
substantially the result it sought or defended (the ‘Prevailing
Party’) . . . shall be entitled to recover from the adverse party
all reasonable fees and costs incurred by the Prevailing Party in
connection with such legal services.” (Docket Entry 47-1 at 41.)
Defendant’s Response does not contest the propriety of an award of
attorney’s fees to the Prevailing Party in this action.
(See
Docket Entry 31.) Morever, it would appear that the Lease would
constitute “evidence of indebtedness” under N.C. Gen. Stat. § 621.2 such that attorney’s fees would be authorized at least up to
15% of the outstanding balance on the Lease. See N.C. Gen. Stat.
§ 6-21.2(2); see also North Carolina Indus. Capital, LLC v.
Clayton, 185 N.C. App. 356, 268 n.6, 649 S.E.2d 14, 23 n.6 (2007)
(“Our appellate courts have held that a lease of real property is
‘evidence of indebtedness’ under section 6-21.2.” (citing
WRI/Raleigh, L.P. v. Shaikh, 183 N.C. App. 249, 644 S.E.2d 245
(2007)); Devereux Props., Inc. v. BBM & W, Inc., 114 N.C. App. 621,
626, 442 S.E.2d 555, 558 (1994) (“[I]f a lease refers to
‘reasonable attorney’s fees’ and does not stipulate a specific
percentage, section 6-21.2(2) applies and the amount of attorneys’
(continued...)
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CONCLUSION
The Lease, First Amendment, and Second Amendment, when read
together, reflect that Plaintiff has no obligation to pay Base Rent
during the Term Extensions.
IT

IS

THEREFORE

RECOMMENDED

that

Plaintiff’s

Motion

for

Summary Judgment (Docket Entry 20) be granted in that the Court
should:
(1) enter judgment declaring that:
(a)

Plaintiff has no obligation to pay Base Rent during
the two Term Extensions under the Lease;

(b)

Plaintiff is not in default for failing to pay such
Base Rent;

(c)

Defendant

is

not

entitled

to

take

any adverse

action against Plaintiff for any failure to pay
such Base Rent; and

5

(...continued)
fees is 15% of the outstanding balance.”).
With respect to
Plaintiff’s request for prejudgment interest (see Docket Entry 1 at
12), “[b]oth North Carolina courts and the Fourth Circuit, in an
unpublished opinion, have recognized that an award of prejudgment
interest is mandatory.” Bridgetree, Inc. v. Red F Marketing LLC,
No. 3:10-cv-00228-FDW-DSC, 2013 WL 443698, at *21 (W.D.N.C. Feb. 5,
2013) (unpublished) (citing Hamby v. Williams, 196 N.C. App. 733,
738, 676 S.E.2d 478, 481 (2009) and Castles Auto & Truck Serv.,
Inc. v. Exxon Corp., 16 F. App’x 163, 168 (4th Cir. 2001)); see
also Vanwyk Textile Sys., B.V. v. Zimmer Mach. Am., Inc., 994 F.
Supp. 350, 389 (W.D.N.C. 1997) (“State law applies to questions
involving prejudgment interest in diversity cases.”); N.C. Gen.
Stat. § 24-5(a) (“In an action for breach of contract, except an
action on a penal bond, the amount awarded on the contract bears
interest from the date of the breach.”).
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(d)

Plaintiff is entitled to return of all Base Rent,
late

fees,

and

interest

paid

under

protest

to

Defendant;
(2)

enter judgment awarding monetary damages for all amounts
of Base Rent and related charges paid under protest by
Plaintiff to Defendant in connection with the Lease, plus
prejudgment interest on the amount of that award; and

(3)

enter judgment awarding Plaintiff its attorneys’ fees and
costs pursuant to Section 44(k) of the Lease as permitted
by N.C. Gen. Stat. § 6-21.2(2).

/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
March 25, 2013

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