Venator Group Specialty, Inc. v. Matthew/Muniot Family, LLC

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________

No. 02-30023

VENATOR GROUP SPECIALTY, INC.,

Plaintiff - Appellant,

v.

MATTHEW/MUNIOT FAMILY, LLC, ET AL.,

Defendants,

MATTHEW/MUNIOT FAMILY, LLC,

Defendant - Appellee.

Appeal from the United States District Court
for the Eastern District of Louisiana

February 20, 2003

Before DAVIS, BENAVIDES, and DENNIS, Circuit Judges.

BENAVIDES, Circuit Judge:

This commercial leasehold case presents a ripeness question.

Appellant Venator Group Speciality, Inc. (Venator) initiated this

declaratory judgement action against Appellee Matthew /Muniot

Family seeking an order declaring Venator’s legal obligations

pursuant to a commercial lease executed in 1938 by the parties’

predecessors in interest. The terms of the 1938 lease

potentially require Venator to make substantial alterations to

the property upon the termination of the lease in January 2004.
Venator sought a declaration prior to the termination of the

lease, asserting that the terms of the lease are impossible to

perform, commercially impractical, and would require Venator to

violate the law. Appellee filed a motion to dismiss, asserting

the action was premature as Venator’s obligations under the lease

remain executory until the lease term expires. The district

court granted Appellee’s motion to dismiss finding the potential

dispute between the parties concerning Venator’s obligations to

alter the property lacked sufficient immediacy to constitute an

actual controversy. Appellant appeals from this ruling.

I.

In 1938 the Woolworth Company (Woolworth) sought to build a

Woolworth store on several lots of commercial property located

along the intersection of Canal and North Rampart Streets in New

Orleans. Towards that end, Woolworth executed multiple leases

with the various owners of the lots Woolworth desired to occupy.

Of these leases, the lease which is primarily at issue here is

the lease to which the Matthew /Muniot Family is the successor in

interest (MMF lease). The MMF lease stipulates the terms of

occupancy for the lot located at 106 North Rampart Street. At

the time of the execution of the lease a three-story building

stood on the leasehold property, and a three-foot alley extended

behind the building. The alley was commonly owned for the use

and privilege of those property owners whose lots fronted North

Rampart Street. The terms of the MMF lease permitted Woolworth

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to demolish the existing building and enclose the alley, so as to

construct a much larger building that was contemplated to extend,

and indeed does extend, beyond the property line of 106 North

Rampart. Thus, the resulting Woolworth Building connects the 106

North Rampart lot with other separately owned lots and

encompasses the property which was once the common alley.

However, the lease also provides in pertinent part that:

[1] Tenant shall, at the expiration or
termination of this lease...at its own cost
and expense, construct new dividing walls on
the interior property lines separating the
demised premises from adjoining property,
provided Landlord requests Tenant in writing
to do so within sixty days of the expiration
or termination of this lease...

[2] Tenant agrees at the expiration of this
lease...to re-establish at its own cost and
expense, the common alley-way now existing
and adjacent to the premises herein demised
and adjoining properties to the southwest...

[3] Any and all improvements or alterations
made in or constructed upon the said premises
and /or any new building or buildings erected
thereon... shall be constructed in conformity
with all requirements of the State of
Louisiana, City of New Orleans, or other
public authority.

Thus, the lease on its face would seem to require that, upon the

termination of the lease, the lessee must re-establish a common

alleyway along the parameter of the lots. Also, if the lessor so

requests, the lessee is required to restore the interior walls

delineating the property boundaries. Both of these obligations

are explicitly limited by any applicable legal restrictions in

3
place at the time of the termination of the lease. The MMF lease

term expires January 31, 2004.1

Contemporaneous with the inception of the MMF lease,

Woolworth executed a similar lease concerning additional parcels

of commercial property owned by the Simon U. Rosenthal Company

(Rosenthal lease). The Rosenthal lease also contained language

concerning the restoration of the property to its free-standing

and alley-endowed pre-lease condition at the termination of the

lease.

In 1997, Woolworth ceased its retail operations nation-

wide, and Venator became the successor to Woolworth’s interest in

the leases executed in connection to the 1938 construction of the

Woolworth Building. In 1999, the Rosenthal lease expired and

the lessor’s successor in interest subsequently brought suit

against Venator seeking to invoke the provisions of the lease

requiring Venator to restore the property to its pre-lease

conditions. The suit was eventually resolved by a settlement in

which Venator purchased the Rosenthal leasehold property.

In March 2001, Venator initiated this action seeking a

declaratory judgement with respect to its obligation to make

1
The original lease term extended to July 1969, and was
three times renewed, twice for a total of twenty-five additional
years, and finally in 1994 the lease was extended an additional
ten years. The provisions concerning the restoration of the
property to its pre-leasehold condition were included in each
subsequent renewal.

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alterations to its leasehold properties pursuant the MMF lease.

In its complaint Ventator alleged that the interior walls and

alleyway provisions of the MMF lease were impossible to perform,

commercially impractical, and would require Venator to violate

the law. Appellee filed a Rule 12(b) Motion to Dismiss, arguing

that the controversy at hand was not ripe for adjudication. The

district court granted the motion to dismiss and Appellant

appeals from that ruling.

II.

The question before this Court is whether the district court

properly dismissed Appellant’s declaratory judgement action, and

we review that decision for abuse of discretion. Wilton v. Seven

Falls Co., 515 U.S. 277 (1995), Gabriel v. City of Plano, 202

F.3d 741, 744 (5th Cir. 2000). Generally, the decision to grant

declaratory relief is statutorily committed to the district

court’s discretion, even where the suit would otherwise meet the

requirements of subject matter jurisdiction. Wilton, 515 U.S. at

286.

However, in the case at bar, the district court dismissed

Appellant’s complaint solely on justiciability grounds, finding

that the complaint failed to “present a substantial controversy

of such immediacy that a declaratory judgement is warranted,” and

this court reviews de novo the question of whether a controversy

is ripe for adjudication. Orix Credit Alliance, Inc. v. Wolfe,

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212 F.3d 891, 895 (5th Cir. 2000)(holding that the issue of

ripeness in a declaratory action is a question of law which the

Court of Appeals reviews de novo); see Shields v. Norton, 289

F.3d 832 (5th Cir. 2002) (applying de novo review to a district

court determination that an action for declaratory judgement was

ripe for adjudication).

In the declaratory judgement context, whether a particular

dispute is ripe for adjudication turns on whether a substantial

controversy of sufficient immediacy and reality exists between

parties having adverse legal interests. Orix Credit Alliance, 212

F.3d at 896; see also, Chevron U.S.A., Inc. v. Traillour Oil

Co.,987 F.2d 1138, 1153(5th Cir. 1993). Here, the district court

determined that the case at bar was unripe for two reasons.2

2
Appellant contends that the district court applied the
wrong standard in deciding whether the issue at bar was ripe for
adjudication. In asserting this argument, it appears to this
court that Appellant is primarily challenging the district
court’s use of the language “premature” as opposed to the
language “actual controversy.” However, the district court
opinion makes clear that the district court used the term
“premature” to connote that the controversy was not ripe for
adjudication, and thus was not an “actual controversy” within the
bounds of the Article III case or controversy requirement. The
district court stated that, “ ‘an actual controversy exists where
“a substantial controversy of sufficient immediacy and reality
[exists] between parties having adverse legal interests.” ’ ”
Venator Group Specialty, Inc. v. Matthew/Muniot Family, No. 01-
0673, at 3 (quoting Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d
891, 896 (5th Cir. 2000) (quoting Middle South Energy, Inc. v.
City of New Orleans, 800 F.2d 488, 490)(5th Cir. 1986)). Having
identified the correct standard for determining ripeness, the
district court went on to find that in the case at hand the case
was premature, as it did not present, “a substantial controversy
of such immediacy that a declaratory judgement is warranted.” Id.

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First, the district court found that a suspensive condition

barred justiciability. Also, the district court found that the

controversy could not be evaluated because the lease at issue was

to be construed in accord with the law in place in January 2004.

We disagree on both counts.

A. Suspensive Condition

In evaluating the controversy now before us, the district

court determined that a contingency exists which is prerequisite

to Appellant’s potential obligation under the MMF lease, and that

the suspensive condition had not yet been met.3 Specifically,

Thus, it seems clear that the district court used the appropriate
standard for its ripeness analysis.

3
The district court also implied that a suspensive
condition presents an obstacle for finding the alleyway
controversy to be ripe. The court found the alleyway dispute to
be premature in part because, “the obligation to rebuild the
alley will not arise, if ever, until the end of the lease in
January 2004.” The court’s use of the phrase “if ever” would
seem to suggest that other contingencies may impede the
triggering of Venator’s obligation under this provision. However,
the alleyway provision states:
Tenant agrees at the expiration of this
lease...to re-establish at its own cost and
expense, the common alley-way now existing
and adjacent to the premises herein demised
and adjoining properties to the southwest.
Thus, it would appear on the face of the lease that, excepting
any applicable building code restrictions, Venator’s obligation
to rebuild the alley will arise in January 2004. While the
condition under which Venator’s obligation would arise is
contingent upon the lease term ending, for a suspensive condition
to bar justiciability in a declaratory judgement context, the
condition must be more than merely executory. There must be some

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the district court found that the potential dispute involving the

interior wall provision of the MMF lease was unjusticiably

premature because, “Venator’s obligation to construct and rebuild

walls and other portions of the building is conditional upon

Matthew/Muniot making a request of it to do so [and] Venator does

not allege that any such request has been made.” Thus, the

district court found the absence of a request by MMF

determinative as to whether the interior wall controversy was

ripe.

However, while the district court is correct that MMF must

first invoke the interior wall provision of the lease before

Venator’s obligation will be triggered, it is important to

remember that the very nature of relief in a declaratory context

is ex ante. Shields, 289 F.3d at 835. The Declaratory Judgement

Act offers the court an opportunity to afford a plaintiff

equitable relief when legal relief is not yet available to him,

so as to avoid inequities which might result from a delay in

assessing the parties’ legal obligations. See 28 U.S.C. §2201.

Consequently, in deciding whether to grant declaratory relief,

the court must necessarily assess the likelihood that future

events will occur, but the court ought not require that those

contingencies to have occurred at the time relief is sought, such

reason to doubt that it will occur. In the instant case there is
no reason to doubt that the lease term will end.

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as it would were it evaluating the availability of legal as

opposed to equitable relief. As the court explained in Orix

Credit Alliance, the fact that certain contingencies pertaining

to plaintiff’s potential liability remain executory at the time

of the declaratory suit does not defeat jurisdiction. Orix Credit

Alliance, 212 F.3d at 897. Instead, the court must assess the

likelihood that the contingencies will occur and then determine,

“whether an injury that has not yet occurred is sufficiently

likely to happen to justify judicial intervention.”Id. at 897.

Here, the physical circumstances surrounding MMF’s plot of

land make it very likely that MMF will invoke the interior wall

provision of the lease. First, we note that the fact that MMF’s

property at present stands conjoined with and within separately

owned parcels of commercial property creates a strong likelihood

that MMF will require that interior walls be constructed. As

Appellant contends, with significant intuitive appeal, it is

difficult to imagine how MMF would be able to market and re-let

its property as long as that property remains inside a portion of

the Woolworth Building. Thus, it seems very likely that, at a

minimum, MMF will use its ability to invoke the interior walls

provision as leverage in negotiating with Venator for the sale or

lease of MMF’s portion of the Woolworth Building property. In any

event, MMF is likely to claim its right to request interior walls

to be built upon the termination of the lease term.

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 Moreover, although the district court found the absence of

evidence that MMF has requested the walls be built to be

determinative of the issue of ripeness with respect to this

provision, we observe that MMF has no incentive to invoke the

interior walls provision prior to the deadline stipulated in the

lease, and so no inference may be made about MMF’s intention to

invoke the lease based on the fact that MMF has yet to act under

that provision. Thus, the ripeness of the controversy surrounding

Venator’s obligation to rebuild the interior walls cannot rest

entirely on the fact that MMF has not yet made such a request.

The circumstances themselves give rise to a likelihood that such

a request will be made, or forbearance of such a request will be

used by MMF in negotiation over the disposition of the property.

Therefore we find that the suspensive condition identified by the

district court as barring justiciability is significantly likely

to occur as to warrant judicial intervention.

B. Building Code of 2004

The district court also found that the potential controversy

surrounding Venator’s obligation to rebuild the alley was

premature for a second reason. The district court found that the

extent of Venator’s obligation to rebuild the alleyway cannot be

assessed until January 2004, as that provision of the lease is to

be construed in accord with the applicable building codes of

January 2004. Thus, the district court found that Venator’s

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claims with respect to the impossibility, impracticality and

illegality of constructing the alley to be speculative.4

We find, however, that the district court erred in holding

that the fact that the lease provisions are expressly limited by

the law of January 2004 defeats the district court’s jurisdiction

to evaluate claims under the lease. Generally, all contracts and

leases must be construed in accord with applicable laws.

Consequently, in any instance in which a party requests an ex

ante declaration of rights under a contract, those rights must be

ascertained in advance of the time contemplated by the contract,

and consequently a theoretically different set of applicable laws

may be in place. However, were this situation sufficient to

render a party’s claims speculative, it would be difficult to

imagine how ex ante relief could ever be provided in a contract

dispute. We find, therefore, that the district court erred in

concluding the fact that the alleyway provision is to be resolved

in accord with the law in place at the time the lease term ends

renders the controversy unjusticiable.

C. Plenary Review

In addition to considering whether the reasons offered by

the district court support a conclusion that the controversy at

4
Venator extends its impossibility/impracticality/illegality
argument to the interior walls provision as well, but the
district court particularly identified the alleyway contention as
speculative.

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hand is not ripe for adjudication, this Court must also consider,

under plenary review, whether the dispute at bar is ripe. As

noted above, a declaratory judgement action is ripe when a

substantial controversy of sufficient immediacy and reality

exists between the parties having adverse legal interests. Orix

Credit Alliance, 212 F.3d at 896.

In the case at bar, Appellant contends that the potential

controversy between the parties concerning the interior walls and

alleyway provisions of the lease are sufficiently immediate to

warrant judicial intervention because the present ambiguity

concerning Venator’s legal obligations create a situation in

which Venator is being presently injured. Venator claims that

the building will remain empty and unmarketable until Venator’s

obligations concerning the walls and alley can be ascertained.

Thus, Appellant argues, if Venator must wait until the lease

terminates to begin litigation, Venator’s interest in the

property will continue to be injured throughout the delay and

subsequent adjudication. Moreover, Appellant notes that the lease

term will end, at which time Venator will be compelled either to

act under the lease or stand in breach.

Appellees respond to Venator’s immediacy argument by noting

that Venator has provided no evidence that the property is

presently unmarketable, or that Venator’s interest in the

property is presently being injured. However, this is an appeal

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from a motion to dismiss a declaratory action. In reviewing the

complaint with respect to evaluating justiciability, we must

assume that allegations made by Appellant are true, as at this

stage of litigation Appellant is required to allege facts

consistent with its claim that it is presently incurring injury,

but Appellant is not required to produce evidence sufficient to

support the claim. See Rowan Companies, Inc. v. Griffin, 876 F.2d

26, 28 (5th Cir. 1989). Here, Venator alleges in its complaint

that, “[d]evelopment of the remaining portion of the square which

the plaintiff’s building rests cannot go forward unless and until

this matter is determined.” Such an allegation is sufficient for

the purpose of defeating a motion to dismiss with respect to this

point.

III.

To conclude, we find that the district court erred in

holding that the controversy at bar is insufficiently ripe as a

matter of law. Moreover, because the district court offered no

alternative or additional reason for denying declaratory relief,

we must assume that the district court based its ruling on the

erroneous ripeness conclusion, and consequently, we find the

district court abused its discretion in granting Appellees’

motion to dismiss. See United States v. Delgado- Nunez, 295 F.3d

494, 496 (5th Cir. 2002)(finding that where a district court

determination rests on an erroneous legal conclusion, the

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district court has, by definition, abused its discretion). We

would emphasize, however, that in so finding we do not pass upon

the merits of Appellant’s plea for declaratory relief. We find

only that the suit here is ripe for adjudication. Whether

declaratory relief should be granted remains committed to the

district court’s discretion. See Rowan Companies, Inc., 876 F.2d

at 29(observing that although the district court erred in finding

a declaratory action unripe, upon its subsequent assessment of

the merits of the action, the district court is “free to exercise

its discretion to maintain or reject the suit.”).

Thus, for the reasons stated herein, the judgment of the

district court is hereby REVERSED and the case is REMANDED for

proceedings consistent with the rendering of this Court.

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