Wells Real Estate Investment Trust II, Inc. v. Chardon/Hato Rey Partnership, S.E.

United States Court of Appeals
For the First Circuit

No. 09-1969

WELLS REAL ESTATE INVESTMENT TRUST II, INC.,

Plaintiff, Appellant,

v.

CHARDON/HATO REY PARTNERSHIP, S.E.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATE DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Jaime Pieras, Jr., U.S. District Judge]

Before
Lynch, Chief Judge,
Torruella* and Lipez, Circuit Judges.

Robert I. Steiner, with whom Damon W. Suden, Kelley Drye &
Warren, LLP, Ricardo F. Casellas, and Casellas, Alcover & Burgos,
P.S.C., were on brief, for appellant.
Eric A. Tulla, with whom Maritza I. Munich, Lillian
Frattallone, José Bagué, Iris J. Cabrera, and Rivera, Tulla &
Ferrer were on brief, for appellee.

August 5, 2010

*
Circuit Judge Torruella heard oral argument in this matter
and thereafter recused himself. The remaining two panelists
therefore issue this opinion pursuant to 28 U.S.C. § 46(d).
 LIPEZ, Circuit Judge. This dispute arose after plaintiff

Wells Real Estate Investment Trust, Inc. (Wells) entered into an

agreement with defendant Chardón/Hato Rey Partnership, S.E.

(Chardón) for the purchase of a commercial building in San Juan,

Puerto Rico. Prior to the expected closing date, a large fuel

spill occurred at the property, causing significant damage and

displacing the building's tenants. Chardón insisted on proceeding

to closing over Wells' objections. After Wells failed to appear

for the scheduled closing, both parties filed claims for breach of

contract.

Wells appeals from the court's grant of summary judgment

in favor of Chardón on Wells' claims for breach and resolution of

contract and Chardón's counter-claim for breach of contract. After

careful review, we affirm the judgment in part, vacate in part, and

remand for further proceedings consistent with this opinion.

I.

A. The Purchase and Sale Agreement

On January 25, 2008, Wells entered into a Purchase and

Sale Agreement (the Agreement) with Chardón by which Wells agreed

to purchase the American International Plaza building in San Juan

(AI Plaza) for $80 million. Pursuant to the Agreement, Wells

placed a $4 million deposit in escrow and agreed to pay the $76

million balance at closing.

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 Section 2.1 of the Agreement defined the "Property" that

Wells agreed to purchase from Chardón:

2.1 Property. Subject to the terms and
conditions of this Agreement, Seller agrees to
sell to Purchaser, and Purchaser agrees to
purchase from Seller, the Real Property, the
Improvements, and all of Seller's right,
title, and interest in the Leases, in the
Tangible Personal Property, in the Intangible
Personal Property, and in the Service
Contracts (as such terms are defined below)
(all of which are collectively referred to as
the "Property").

Article 6 of the Agreement addressed "OPERATIONS AND RISK

OF LOSS." Section 6.1.3 set forth Chardón's ongoing maintenance

obligations from the effective date of the Agreement, January 25,

through closing:

6.1.3. Maintenance of Improvements; Removal of
Personal Property. Subject to Sections 6.2
and 6.3, Seller shall maintain or cause the
tenants under the Leases to maintain (to the
extent provided in such Leases) all
Improvements substantially in their present
condition (ordinary wear and tear and casualty
excepted) and in a manner consistent with
Seller's maintenance of the Improvements
during Seller's period of ownership. Seller
will not remove any Tangible Personal Property
except as may be required for necessary repair
or replacement.

Section 6.2, entitled "Damage," set forth the parties'

rights and obligations in the event that "prior to Closing the

Property is damaged by fire or other casualty." If such a casualty

occurred, "Seller shall estimate the cost to repair and the time

required to complete repairs and will provide Purchaser written

-3-
notice of Seller's estimation (the 'Casualty Notice') as soon as

reasonably possible . . . ." Section 6.2.1 defined "Material

Damage" as "damage which, in Seller's reasonable estimation,

exceeds $4,000,000 to repair," and provided that "[i]n the event of

any Material Damage to or destruction of the Property or any

portion thereof prior to Closing, Purchaser may, at its option,

terminate this Agreement" and recover its deposit. Section 6.2.2

provided that if "the Property is not Materially Damaged, then

Purchaser shall not have the right to terminate this Agreement;"

instead, Chardón could either repair the nonmaterial damage in a

manner reasonably satisfactory to Wells or credit Wells at closing

for the reasonable cost to complete the repairs.

Section 7.3 required Chardón to deliver certain documents

to the escrow agent on or before the closing date, including

"tenant estoppel certificates" by which AI Plaza tenants warranted

certain information about their leases.1 Under Section 7.3.7,

Chardón was required to deliver "Tenant Estoppel Certificates for

the Leases" executed by tenants such that the tenants who executed

estoppel certificates, in the aggregate, "occupy 75% of the

leasable space in the Improvements (the 'Required Estoppels')."

The Agreement specified that "[i]t shall be a further condition to

1
For example, the tenant estoppel certificates contained
information about the date of the tenant's lease, the square
footage of the leased property, and the amount of the security
deposit, and provided assurances that the lease remained in force
and had not been amended or modified except as indicated.

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Purchaser's obligation to close the transaction" that "the Required

Estoppels, do not . . . reflect any material discrepancies of the

terms of the Leases as compared with the terms of the Leases set

forth in the copies of the Leases delivered by Seller . . . ."

However, this section also stated that Wells' remedies for

Chardón's failure to deliver the required estoppels were limited:

"If Seller is unable to deliver the Required Estoppels" by the

closing date, "then Purchaser's sole remedies and recourses shall

be limited to either (A) waiving the requirement for the tenant

estoppel certificate(s) in question and proceeding to Closing

without reduction of the Purchase Price or (B) terminating this

Agreement by immediate notification to Seller" and recovering any

deposit.

B. The Fuel Spill

Prior to closing, the transformer for AI Plaza's main

electrical service failed on February 10, 2008, and the building's

two diesel-powered back-up generators began operating. Late on

February 11 or early on February 12, a large diesel fuel spill

occurred. About 1,200 gallons of fuel spilled from the maintenance

room on the building's top floor into other parts of the building.

As a result of the spill, AI Plaza required significant

remediation, repair, cleaning and restoration, and its tenants were

forced to vacate the building. Chardón obtained the necessary

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clearances to reopen the building for occupancy on March 26, and

the majority of tenants returned by the end of May.

On February 15, Chardón notified Wells by letter that a

fuel spill had occurred at AI Plaza and that Chardón's initial

estimate of the cost to clean up the spill and repair the damage to

repair "the Property" was $650,000.2 Chardón stated that pursuant

to Section 6.2.2 of the Agreement, which governed nonmaterial

damage, it elected to complete a portion of the clean-up and repair

prior to closing and credit Wells for the remaining costs of

repair. The following week, Wells responded with concern that

"this estimate may be unduly low, and indeed the Property may have

been Materially Damaged, as that term is defined in Section 6.2.1,"

and requested further information and documentation supporting

Chardón's estimate.

On March 6, Chardón advised Wells that it believed

remediation of the fuel spill was "95%" complete. Chardón provided

a revised estimate of $2,546,509 for the "expected costs to

complete the environmental cleanup, restoration, and subsequent

certification relative to the diesel oil spill," and an additional

$100,000 for replacement of the transformer for the building's main

electric service. Wells again expressed concern about the

reasonableness of Chardón's repair estimate, noting that "we are

2
Chardón's letter stated that "[a]ll capitalized terms used
herein that are not expressly defined herein shall have the meaning
ascribed to them in the Agreement."

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still reviewing this latest estimate but believe that it too may

fall short of fully estimating the substantial damages incurred at

the Property" due to the fuel spill.

In the course of litigation, Chardón produced expert

evidence that the actual total cost to repair the physical property

was $3,606,407. Chardón also incurred additional costs in order to

"maintain cordial relations with the tenants," but did not consider

these expenditures to be repair costs within the meaning of the

Agreement. These additional costs included $2,343,878 in rent and

other abatements to AI Plaza tenants, $671,804 in other "tenant

benefits," and $208,489 in "payments related to tenant benefits."3

C. Tenant Estoppel Certificates

Prior to the fuel spill, Chardón delivered tenant

estoppel certificates to Wells on February 6, 2008, pursuant to

Section 7.3.7 of the Agreement. Several days later, Chardón and

Wells representatives had a phone conversation in which Wells

raised concerns about apparent discrepancies in several of the

estoppel certificates provided, and Chardón attempted to assuage

3
The $671,804 in other "tenant benefits" included a $1,000
credit toward a hotel stay for each employee who facilitated a
tenant's move to a temporary location, a $50-per-employee credit
toward a tenant employee event, a $250 dinner-package giveaway for
each floor of the building, flowers and breakfast upon the tenants'
return to the building, and the equivalent of 60 days' rent for
each tenant toward tenant improvements at the building. The
$208,489 in "payments related to tenant benefits" included payments
for third party consulting services, infrared inspection, and
indoor air quality analyses.

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Wells' concerns. On February 11, Wells sent an email to Chardón

listing "a few issues arising under the estoppels delivered last

week" and stated that "[t]hese matters must be resolved to Wells'

satisfaction prior to closing."4

On March 3, after the fuel spill, Wells reiterated to

Chardón that the estoppel certificates delivered on February 6 did

not satisfy Section 7.3.7 of the Agreement and that issues related

to the estoppels "remain[ed] outstanding." Wells further noted

that in the wake of the fuel spill, local media had reported that

some tenants might not return to AI Plaza, and therefore Wells

requested that Chardón provide new, satisfactory estoppel letters

from all tenants. In letters dated March 11 and March 12, Wells

again stated that the estoppel certificates provided on February 6

were not satisfactory and noted that new estoppels had not been

provided after the fuel spill as requested. Chardón did not

provide Wells with new estoppel certificates prior to closing. At

the same time, Wells did not notify Chardón that it wished to

4
Wells' email detailed concerns with the estoppel
certificates executed by six tenants. For example, the email
stated that "Goldman Antonetti alleges overpayment in rent due to
a miscalculation in the SF arising from the time of the second
amendment. This could obviously be a material issue for both
parties"; "Charles Schwab alleges an outstanding demising allowance
that, if not yet paid, will need to be credited to purchaser at
closing. If Seller has already paid this amount, please send
appropriate evidence"; and "[t]he ETS estoppel shows 3,205 SF, but
the lease says 3,025. This appears to be a typo and needs to be
fixed. A handwritten change initialed by the tenant will suffice."

-8-
terminate the Agreement due to Chardón's alleged failure to provide

satisfactory estoppel certificates.

D. Closing

Following postponement of the original closing date, on

March 10, Chardón notified Wells that the new closing date would be

March 14. On March 11, Wells objected to Chardón's attempt to

proceed to closing at that time, stating that Chardón had "failed

to comply with its obligations and satisfy all of the conditions of

Closing." In particular, Wells cited Chardón's failure to provide

satisfactory estoppel certificates and its failure to provide a

reasonable estimate of the damages to AI Plaza. Chardón appeared

for closing on March 14, but Wells did not. Both parties claimed

the $4 million deposit, and the escrow agent advised the parties

that it would hold the funds pending resolution of the dispute.

E. Proceedings in the District Court

Wells filed this action in federal district court in June

2008, alleging causes of action under Puerto Rico law5 for breach

of contract and rescission or resolution of contract. See P.R.

Laws Ann. tit. 31, §§ 2994, 3018, 3052. Wells sought the return of

its $4 million deposit plus interest and attorney fees, alleging

that (1) a reasonable estimate of the repairs to AI Plaza exceeded

$4 million and therefore constituted "Material Damage" under

5
The Agreement stated that it was to be "governed, construed,
applied, and enforced" by Puerto Rico law.

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Section 6.2.1 of the Agreement, (2) Chardón failed to deliver the

estoppel certificates required under Section 7.3.7 prior to

closing, and (3) Chardón failed to comply with its maintenance

obligations under Section 6.1.3. Chardón filed a counterclaim

alleging that Wells breached the Agreement by acting in bad faith

and failing to close the transaction on March 14 and likewise

sought as damages the $4 million deposit plus interest and attorney

fees.

Following discovery, the parties filed cross-motions for

summary judgment. Wells moved for summary judgment on the grounds

that (1) a reasonable estimate of costs to repair the "Property"

included costs to repair both the physical property and the leases,

and therefore the undisputed facts demonstrated that a reasonable

estimate of repair costs would exceed $4 million; and (2) Chardón

failed to deliver the required tenant estoppel certificates free of

material discrepancies prior to closing. The motion contained no

concession that the cost of physical repairs alone was less than $4

million and stated that the exact cost of repairs remained a

disputed fact. Chardón cross-moved for partial summary judgment on

the grounds that (1) a reasonable estimate of repairs to the

"Property" included only physical repairs and not expenditures such

as rent abatements and tenant benefits; (2) Chardón provided the

required estoppel certificates and, in any event, Wells waived that

requirement; and (3) Chardón fulfilled its maintenance obligations.

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 The district court granted Chardón's motion and denied

Wells' motion. The court then dismissed Wells' complaint and

entered judgment for Chardón on its counter-claim in the amount of

$4 million plus interest and attorney fees. This timely appeal

followed.

II.

On appeal, Wells contends that the district court erred

in denying its motion for summary judgment and granting summary

judgment for Chardón. Wells argues that the court (1) improperly

granted sua sponte summary judgment as to certain issues, (2)

erroneously interpreted the Agreement to mean that a reasonable

estimate of costs to repair the "Property" was limited to physical

repairs, (3) erred in concluding that Chardón delivered the

required tenant estoppel certificates and that Wells had waived

that requirement in any event, and (4) disregarded genuine issues

of material fact in concluding that Chardón fulfilled its

contractual maintenance obligations. Wells further contends that

the court abused its discretion in denying Wells' motion to compel

production of certain documents. We address each contention in

turn.

Summary judgment is appropriate where "the pleadings, the

discovery and disclosure materials on file, and any affidavits show

that there is no genuine issue as to any material fact and that the

movant is entitled to a judgment as a matter of law." Fed. R. Civ.

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P. 56(c). We review the district court's grant of summary judgment

de novo, drawing all reasonable inferences in favor of the

nonmoving party. Velez v. Thermo King de Puerto Rico, Inc., 585

F.3d 441, 446 (1st Cir. 2009).

Cross-motions for summary judgment do not alter the

summary judgment standard, but instead simply "require us to

determine whether either of the parties deserves judgment as a

matter of law on the facts that are not disputed." Adria Int'l

Group, Inc., v. Ferré Development, Inc., 241 F.3d 103, 107 (1st

Cir. 2001). Although it is well-settled that the court must decide

each motion for summary judgment on its own merits, this does not

mean that "each motion must be considered in a vacuum. Where, as

here, cross-motions for summary judgment are filed simultaneously,

or nearly so, the district court ordinarily should consider the two

motions at the same time," applying the same standards to each

motion. P.R. American Ins. Co. v. Rivera-Vázquez, 603 F.3d 125,

133 (1st Cir. 2010).

A. Sua Sponte Summary Judgment as to Material Damage Claim

Wells contends that the district court erred in granting

sua sponte summary judgment as to issues underlying its claim that

AI Plaza incurred "Material Damage" as a result of the fuel spill,

without first affording Wells adequate notice and an opportunity to

present evidence and argument in support of its position.

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 In appropriate circumstances, a district court may enter

summary judgment sua sponte. Berkovitz v. Home Box Office, Inc.,

89 F.3d 24, 29 (1st Cir. 1996) (citing Celotex Corp. v. Catrett,

477 U.S. 317, 326 (1986)). Given the potential unfairness of this

practice, however, the district court may summarily decide a claim

on its own initiative only if two conditions are met: First,

discovery must be "sufficiently advanced that the parties have

enjoyed a reasonable opportunity to glean the material facts." Id.

at 29. Second, the court must first "give[] the targeted party

appropriate notice and a chance [in accordance with the rules] to

present its evidence on the essential elements of the claim or

defense." Id. In this context, "notice" requires that the

nonmovant was given "reason to believe the court might reach the

issue and received a fair opportunity to put its best foot

forward." Levya v. On the Beach, Inc., 171 F.3d 717, 720 (1st Cir.

1999) (internal quotation marks and citation omitted); see also

Stella v. Town of Tewksbury, 4 F.3d 53, 56 (1st Cir. 1993) ("[T]he

notice requirement for sua sponte summary judgment demands at the

very least that the parties (1) be made aware of the court's

intention to mull such an approach, and (2) be afforded the benefit

of the minimum 10-day period mandated by Rule 56.")

A court's sua sponte entry of summary judgment without

appropriate notice is often grounds for reversal. See, e.g.,

Levya, 171 F.3d at 721; Berkovitz, 89 F.3d at 29. However, if the

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appellant was not procedurally prejudiced by the lack of adequate

notice -- that is, if the appellant was not deprived of the

opportunity "to present evidence in support of its position as a

result of the unfair surprise" -- then the failure to provide

notice is harmless error. P.R. Electric Power Auth. v. Action

Refund, 515 F.3d 57, 64 (1st Cir. 2008).

We conclude that the district court erred by entering

summary judgment sua sponte as to Wells' entire Material Damage

claim without appropriate notice. Wells' complaint alleged that it

was entitled to recover its $4 million deposit under Section 6.2.1

because AI Plaza had suffered "Material Damage," that is, damage to

"the Property" that, in Chardón's "reasonable estimation, exceeds

$4,000,000 to repair." Wells moved for summary judgment on this

claim, contending that under the Agreement, a reasonable estimate

of costs to repair the "Property" included repairs to both the

physical property and the leases (for example, rent abatement and

other tenant benefits), and that it was undisputed based on

Chardón's own expert evidence that those combined costs exceeded $4

million.

Chardón cross-moved for partial summary judgment only as

to the contract interpretation issue. In its motion, captioned a

"motion for partial summary judgment," Chardón contended that based

on the clear language of the Agreement, "the Court should find, as

a matter of law, that the term 'repair costs' should be limited to

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physical repairs of the Property and that said term does not

include tenant benefits, rent abatements or diminution of value."

As the "partial summary judgment" caption suggests, Chardón's

motion did not fully dispose of Wells' Material Damage claim: even

if Chardón prevailed on the contract interpretation issue, Wells

could still succeed on its claim based on proof that a reasonable

estimate of the costs of physical repairs alone exceeded $4

million. Chardón did not move for summary dismissal of Wells'

entire Material Damage claim and did not contend it was undisputed

that a reasonable estimate of the cost of physical repairs alone

fell below the $4 million threshold.

Nevertheless, the court entered summary judgment on

Wells' entire Material Damage claim on its own initiative,

reasoning that "[h]aving found that the cost of repair is limited

to the repair of the physical structure, the Court also necessarily

finds that Defendant has provided Plaintiff with a reasonable

estimate of said cost" and that this reasonable estimate was less

than $4 million. Prior to making its sua sponte ruling, the court

gave Wells no notice that it would decide not only the contract

interpretation issue of whether a reasonable estimate of repair

costs was limited to physical repairs, but also the fact-intensive

issue of whether a reasonable estimate of repairs to the physical

property alone exceeded $4 million. The record does not reveal any

order or other statement from the court indicating to the parties

-15-
that it might summarily decide the merits of Wells' entire Material

Damage claim. Wells' own motion for summary judgment, which also

addressed the Material Damage claim, further confirms the lack of

notice. Wells stated in its motion that "[w]hile the exact amount

to repair the damage to the Property remains a disputed fact in

this litigation, that dispute does not require a trial, because

there are several key dispositive undisputed facts upon which this

Court can enter summary judgment in Wells' favor." (Emphasis

added.)6

Moreover, we cannot say that the court's failure to

provide adequate notice was harmless. Wells contends that, if it

had been on notice that its entire repair costs claim was at risk

of dismissal, it would have presented evidence that Chardón's

estimates of repair costs unreasonably excluded some costs related

to repair of the physical structure, such as the cost of certain

environmental testing at the building.7 Wells was therefore

6
Contrary to Chardón's suggestion, Wells' statement was not
a concession that it was undisputed that a reasonable estimate of
the cost to repair the physical property was less than $4 million.
Instead, Wells was arguing that the factual dispute over repair
costs did not require a trial because Wells was entitled to summary
judgment based on undisputed evidence that (1) a reasonable
estimate of repair costs included both physical and lease-related
repairs and (2) those combined costs exceeded $4 million.
7
Invoking the general rule that arguments not first raised
in the district court are forfeited, Chardón faults Wells for not
contending in the district court that Chardón's estimates
unreasonably excluded physical repairs and that a reasonable
estimate of the cost even of physical repairs alone exceeded $4
million. However, Chardón misses the point. Because Chardón did

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procedurally prejudiced by the sua sponte adjudication of its

claim.8

B. Ruling that a Reasonable Estimate of Costs to Repair the
"Property" Was Limited to Physical Repairs

Wells contends that the district court erred in

concluding that a reasonable estimate of the cost to repair the

Property under Section 6.2.1 "unambiguously refers to physical

damage." Under Puerto Rico's Civil Code,

If the terms of a contract are clear and leave
no doubt as to the intentions of the
contracting parties, the literal sense of its
stipulations shall be observed.

If the words should appear contrary to the
evident intention of the contracting parties,
the intention shall prevail.

P.R. Laws Ann. tit. 31, § 3471. "'[C]lear' terms are those that 'in

themselves are lucid enough to be understood in one sense alone,

not move for summary judgment on the ground that a reasonable
estimate of physical repairs was less than $4 million, and because
Wells did not have notice that this issue would be decided by the
court sua sponte, Wells had no obligation to raise a genuine issue
of material fact as to this issue. Wells likewise had no
obligation to move for summary judgment on this issue. That is
especially so since Wells' position is that there was a dispute of
material fact as to the total cost of repairs.
8
Although Wells also contends that the court improperly
granted sua sponte summary judgment on its resolution of contract
claim, we need not reach this issue. While the court treated
Wells' resolution of contract claim as if it rested only on the
estoppel certificate issue, that claim also rested in part on
Wells' allegation that Chardon failed to meet its contractual
maintenance obligations. As discussed below, the court erred in
concluding as a matter of law that Chardon fulfilled its
maintenance obligations, and therefore summary judgment on the
resolution of contract claim was improper.

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without leaving any room for doubt, controversies or difference of

interpretation.'" Home Ins. Co. v. Pan American Grain Mfg. Co.,

Inc., 397 F.3d 12, 16 (1st Cir. 2005) (quoting Heirs of Ramírez v.

Superior Court, 81 P.R.R. 347, 351 (1959)). The terms of a

contract "should be interpreted in relation to one another, giving

to those that are doubtful the meaning which may appear from the

consideration of all of them together." P.R. Laws Ann. tit. 31,

§ 3475. If the terms of the contract are ambiguous, extrinsic

evidence is admissible to prove the parties' intent, and summary

judgment is appropriate only if the undisputed extrinsic evidence

of intent "supports only one of the conflicting interpretations."

Adria, 241 F.3d at 111; see also Boston Five Cents Sav. Bank v.

Secretary of Dept. of Housing and Urban Dev., 768 F.2d 5, 8 (1st

Cir. 1985) (approving summary judgment notwithstanding textual

ambiguity if "the evidence presented about the parties' intended

meaning [is] so one-sided that no reasonable person could decide

the contrary" (citing 3 Corbin on Contracts § 554 (1960)).

In this case, the text of the Agreement is ambiguous.

Section 6.2.1 provided that in the event of "Material Damage to or

destruction of the Property or any portion thereof prior to

Closing," Wells could terminate the contract and recover its

deposit. This section defined "Material Damage" as "damage which,

in Seller's reasonable estimation, exceeds $4,000,000 to repair."

Wells contends that a reasonable estimate of the costs to repair

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the "Property" under this section must include not only repairs to

the physical property but also repairs to the tenant leases -- for

example, rent abatement and other tenant benefits. Wells'

interpretation finds support in Section 2.1 of the Agreement, which

defined the term "Property" to include "the Real Property, the

Improvements, and all of Seller's right, title, and interest in the

Leases, in the Tangible Personal Property, in the Intangible

Personal Property, and in the Service Contracts." The Agreement

further specified that all defined terms, which were indicated by

initial capital letters, "shall have the meaning set forth herein."

Thus, for purposes of their contractual dealings, the parties took

care to specially define the term "Property" in a manner somewhat

different from its ordinary meaning. See In re Blinds to go Share

Purchase Litigation, 443 F.3d 1, 7 (1st Cir. 2006) ("Where the

parties to a contract take pains to define a key term specially,

their dealings under the contract are governed by that

definition.")

We further note that Wells and Chardón, sophisticated

parties represented by counsel, agreed to distinct definitions of

the terms "Real Property" (the land), "Improvements" (the

structures, fixtures, equipment and machinery), and "Property" (the

real property, improvements, and leases, among other interests).

Elsewhere in the Agreement, the parties used the terms "Real

Property" or "Improvements" rather than the more inclusive term

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"Property." If the parties intended a reasonable estimate of the

cost of repairs under Section 6.2.1 to include repairs to the

physical property only, they could easily have referred to damage

to the "Real Property and Improvements" rather than damage to the

"Property."

Chardón counters that a reasonable estimate of the costs

to repair the Property under this section included only repairs to

the physical property, that is, to the land and building. This

interpretation, too, finds support in the text of the Agreement.

Section 6.2.1 spoke of "damage" and "repair" to the Property, words

that, at least as commonly used, make little sense in the context

of tenant leases. In addition, Section 6.2.2, which discussed

nonmaterial damage, provided that the reasonable cost to complete

repairs was to be determined by "an architect or engineer," both of

which are professionals with expertise in assessing the cost of

repairs to physical property, not repairs to tenant leases.

Given that the text of the Agreement reasonably supports

multiple, conflicting interpretations, the district court erred in

concluding a reasonable estimate of costs to repair the "Property"

unambiguously referred only to physical repairs. On remand, the

factfinder should consider extrinsic evidence to determine the

parties' intent as to the meaning of the Agreement on this issue.

See P.R. Laws Ann. tit. 31, § 3472 (in evaluating the parties'

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intent, "attention must principally be paid to [the parties'] acts,

contemporaneous and subsequent to the contract").9

C. Tenant Estoppel Certificates

Wells next contends that the court erred in concluding

that Chardón provided the required tenant estoppel certificates

free of material discrepancies and, alternatively, that Wells

waived that requirement. We need not reach the question of whether

Chardón provided adequate estoppel certificates because even

assuming it did not, we conclude that Wells has no remedy for this

failure under the clear terms of the Agreement.

As a condition of Wells' obligation to close the

transaction, the Agreement required that Chardón provide Wells with

tenant estoppel certificates, free of material discrepancies, from

certain AI Plaza tenants. However, Section 7.3.7(c) of the

9
In its motion for summary judgment in the district court,
Chardón pointed to certain extrinsic evidence that it contended
"confirm[ed]" its interpretation of the "lucid" contractual
language. However, Chardón has not argued, either in the district
court or on appeal, that even if the contractual language were
ambiguous, Chardón would be entitled to summary judgment based on
the extrinsic evidence of intent. In any event, we cannot say that
the extrinsic evidence of intent cited by Chardón was "so one-sided
that no reasonable person could decide the contrary." See Boston
Five, 768 F.2d at 8. In its motion for summary judgment, Chardón
primarily pointed to correspondence between the parties in which
Wells disputed the reasonableness of Chardón's estimates of repair
costs and pointed out physical repairs that Chardón had failed to
account for. This evidence certainly indicates that Wells believed
that a reasonable estimate of repair costs under Section 6.2.1
included physical repairs, but does not necessarily establish that
Wells intended a reasonable estimate of repair costs to be limited
to physical repairs.

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Agreement expressly stated that "[n]otwithstanding anything herein

to the contrary . . . if Seller is unable to deliver the Required

Estoppels" by the closing date, "then Purchaser's sole remedies and

recourses shall be limited to either (A) waiving the requirement

for the tenant estoppel certificate(s) in question and proceeding

to Closing without reduction of the Purchase Price or (B)

terminating this Agreement by immediate notification to Seller" and

recovering its deposit. (Emphasis added.) Under the Agreement,

notices such as that required by subsection (B) had to be in

writing.

Wells strenuously argues that it did not waive the

estoppel certificate requirement within the meaning of subsection

(A) because in the weeks prior to closing, Wells repeatedly

informed Chardón that some of the estoppels provided were

inadequate under Section 7.3.7 and requested that new, compliant

estoppels be delivered. At the same time, Wells concedes that it

did not terminate the Agreement by written notice due to Chardón's

alleged failure to provide the required estoppels free of material

discrepancies, as permitted by subsection (B).

Faced with its failure to pursue either of the remedies

set forth in Section 7.3.7, Wells contends that Section 7.3.7 "is

silent about what happens if Wells does not elect either option"

and argues that in this circumstance it should be deemed to have

terminated the Agreement. But Section 7.3.7 is not silent about

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Wells' remedies in the event that it declines to select either

option -- instead, this section unambiguously states that Wells'

"sole remedies and recourses" are "limited" to the two enumerated

courses of action. We cannot, as Wells urges, ignore the

Agreement's references to "sole" and "limited" remedies and rewrite

the Agreement to provide a third avenue of relief. Because Wells

chose not to pursue either of the options provided by Section

7.3.7(c), it has no remedy or recourse for Chardón's alleged

failure to provide the required estoppels.10

D. Maintenance Obligations

Wells further contends that the court overlooked genuine

issues of material fact in concluding that Chardón complied with

its maintenance obligations under Section 6.1.3 of the Agreement.

Section 6.1.3 imposed an ongoing obligation on Chardón,

from the effective date of the Agreement (January 25) through

closing, to "maintain . . . all Improvements substantially in their

10
Wells' argument that it should be deemed to have terminated
the Agreement relies in part on the language of Section 10.2, a
more general provision on the purchaser's remedies in the event
that the seller defaults on its obligations under the Agreement for
reasons other than the purchaser's failure to perform. However,
even assuming that these two sections are in conflict, Section
7.3.7, which directly and specifically addresses the parties'
remedies in the event that Chardón fails to deliver the required
estoppels, cannot be set aside based on the general language of
Section 10.2. See, e.g., Central Intern. Co. v. Kemper Nat. Ins.
Cos., 202 F.3d 372 (1st Cir. 2000) (setting forth the "ordinary
principle[] of contract interpretation" that "specific language is
treated as a limitation on general language" (citing Restatement
(Second) of Contracts § 203(c) (1979))).

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present condition (ordinary wear and tear and casualty excepted)

and in a manner consistent with Seller's maintenance of the

Improvements during Seller's period of ownership."11

Viewing the evidence in the light most favorable to the

nonmoving party, Wells, we conclude that there are genuine issues

of material fact as to whether Chardón maintained all

"Improvements," in particular the building's back-up generators and

associated fuel tanks and fuel-pumping system, substantially in

their present condition and in a manner consistent with Chardón's

maintenance during its ownership. On February 10, the transformer

for AI Plaza's primary electrical service failed and the building's

two back-up generators were activated. The back-up generators were

powered by diesel fuel. A fuel-pumping system transported diesel

fuel from large storage tanks in the building's basement to two

smaller day tanks located on the top floor mechanical room. Late

on February 11 or early on the morning of February 12, a control

panel on the day tanks malfunctioned. As a result, the pumping

system continued to pump fuel into the two day tanks even after

they were full, causing them to overflow. Although the system

sounded an alarm, it was only audible on one level of the building

and was not heard for several hours. By the time the problem was

11
The district court determined that "the 'as is' language
contained in section 11.2 of the Agreement does not relieve
[Chardón] of its specific maintenance obligations under Section
6.1.3." Chardón does not challenge that conclusion on appeal and
therefore we do not address it.

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discovered, about 1,200 gallons of fuel had spilled from the

mechanical room into utility shafts, electrical ducts, and other

parts of the building.

In granting summary judgment for Chardón, the district

court relied on largely undisputed evidence of Chardón's preventive

maintenance of the back-up generators. In June 2007, Chardón

entered into an annual maintenance service contract with RIMCO,

Inc., for the maintenance of the generators, pursuant to which

RIMCO provided "Level II"12 preventive maintenance on both

generators twice annually. The last regular Level II maintenance

visit before the fuel spill occurred in November 2007, and the next

visit was scheduled for May 2008. On February 11, 2008, after the

back-up generators were activated, RIMCO performed a "Level I"

preventive inspection of the back-up generators at Chardón's

request and found them to be in good operating condition. Shortly

after the fuel spill, on February 14, RIMCO returned for another

maintenance visit and found that a control panel on the day tanks

was "frozen." The RIMCO technician reset the control panel, tested

it, and found it operational. As a preventive measure, the

technician then replaced the control panels at Chardón's request.

The generators were again found to be in good operating condition.

Based on this evidence, the court concluded that there was no

12
RIMCO had two levels of maintenance service; Level II was
the more comprehensive service.

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genuine issue of fact as to whether Chardón complied with its

maintenance obligations under Section 6.1.3.

However, additional evidence proffered by Wells, which

was not mentioned by the district court, raised a genuine issue of

material fact as to whether Chardón and/or its independent

contractor, RIMCO, negligently maintained the building's back-up

generators and associated fuel-pumping system in the days before

the fuel spill. First, Wells produced evidence that the systems

likely responsible for the spill, the fuel-pumping system and day

tank control panels, were not within the scope of RIMCO's

responsibility or expertise. RIMCO representatives testified that

Chardón contracted with RIMCO to inspect and maintain only the

generators themselves. RIMCO was not hired to perform, and did not

have the technical expertise to perform, service and maintenance of

the fuel-pumping system, the valves for the fuel-pumping system,

the day tank control panels, or the alarm system. On February 11,

the day before the fuel spill, the RIMCO technician did not inspect

the day tank control panels or fuel-pumping system.13 There is no

evidence that anyone other than RIMCO was hired to inspect and

maintain these associated systems.

13
Chardón disputes this view of the scope of RIMCO's
maintenance responsibilities, pointing to evidence that the RIMCO
Level II inspection checklist included "[c]hecking the function of
all clocks and safety indicators" and that RIMCO did in fact
inspect the generator gauges and security indicators. However, any
factual dispute on this point is for the factfinder to decide.

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 Second, Wells produced evidence that Chardón's preventive

maintenance of the generators between semiannual RIMCO inspections

was not in accordance with the guidelines in the manufacturer's

manual. For example, although the manufacturer recommended weekly

operational checks of the generators, Chardón's logbooks indicated

that it ordinarily performed only monthly operational checks.

Third, Wells produced evidence that in February 2009,

Chardón and its insurer filed suit against RIMCO and other

independent contractors alleging negligence in the installation and

maintenance of the electrical transformer, back-up generators, and

associated systems. The suit claimed, inter alia, that RIMCO was

negligent in "not installing or appropriately maintaining, testing,

inspecting, and/or repairing the diesel-driven backup generator

systems, including the day tanks, in such a way as to ensure that

the appropriate precautions were taken to avoid an overflow of

diesel fuel from the day tanks." Chardón does not dispute that its

contractor's negligence may be imputed to it for purposes of this

contractual obligation. Such imputation would be consistent with

certain tort law principles. See Colmenares Vivas v. Sun Alliance

Ins. Co., 807 F.2d 1102, 1107 (1st Cir. 1986) (stating "general

principle" that the duty to keep business premises reasonably safe

cannot be delegated to a third party (citing Restatement (Second)

of Torts § 344 (1965))); see also Restatement (Second) of Torts §

425 (property owner who "employs an independent contractor to

-27-
maintain in safe condition land which he holds open to the entry of

the public as his place of business" is liable for contractor's

negligence).

Viewed in the light most favorable to Wells, the evidence

permits a finding that Chardón did not fulfill its maintenance

obligations under Section 6.1.3. A reasonable jury could find that

Chardón and/or RIMCO negligently maintained the back-up generators,

day tanks, and fuel-pumping system in the days leading up to the

fuel spill, and that Chardón thereby failed in its ongoing

obligation to maintain these "Improvements" substantially in their

present condition and in a manner consistent with Chardón's

maintenance during its ownership of the property.14

E. Motion to Compel

Finally, Wells contends that the district court abused

its discretion in denying its motion to compel production of

14
Chardón argues that "[w]hether or not RIMCO actually
performed 'good' or 'bad' maintenance, or whether it maintained
systems other than the generators, is totally irrelevant." In
Chardón's view, it fulfilled its maintenance obligations under
Section 6.1.3 simply because it "maintained the same level of
maintenance" from the effective date of the Agreement through the
purported closing date, that is, a Level II maintenance service
contract with RIMCO. However, the requirements of Section 6.1.3
cannot be so easily avoided. If Chardón or its independent
contractors negligently failed to maintain the back-up generators,
day tanks, or fuel-pumping system in the weeks between the
effective date of the contract and the closing date, a jury could
reasonably find that Chardón failed to "maintain . . . all
Improvements substantially in their present condition" within the
meaning of Section 6.1.3.

-28-
documents related to Chardón's claim against its insurer for

damages resulting from the fuel spill.

The trial court has "broad discretion in ruling on pre-

trial management matters," and we review the court's denial of

Wells' motion to compel "for abuse of its considerable discretion."

Ayala-Gerena v. Bristol Myers-Squibb Co., 95 F.3d 86, 91 (1st Cir.

1996). This standard of review is "not appellant-friendly," and we

"will intervene in such matters only upon a clear showing of

manifest injustice, that is, where the lower court's discovery

order was plainly wrong and resulted in substantial prejudice to

the aggrieved party." Dennis v. Osram Sylvania, Inc., 549 F.3d

851, 860 (1st Cir. 2008) (quotation marks and citations omitted).

The district court denied Wells' motion to compel on the

ground that its discovery request was "untimely and unduly

burdensome," a determination well-supported by the record. On

April 2, 2009, Wells for the first time demanded all documents

related to Chardón's insurance claim for damages arising from the

fuel spill, including "any documents submitted to your client's

insurer and any correspondence among [the insurer] and [Chardón]."

This broad request came months after the October 14, 2008 initial

scheduling conference, the date by which the court had ordered the

parties to serve all interrogatories and requests for production.

Wells' original request for production of documents, which was

filed in September 2008, within the discovery deadlines, did not

-29-
request any documents related to Chardón's insurance claim.15 In

light of this evidence, the court acted within its considerable

discretion in denying Wells' motion to compel.

III.

For the foregoing reasons, the judgment of the district

court is affirmed in part, vacated in part, and the case is

remanded for further proceedings consistent with this opinion.

Each party shall bear its own costs on appeal.

So ordered.

15
Wells contends that documents related to Chardón's insurance
claim should have been produced in response to its original
requests for production, which contained a request for "[a]ll
documents concerning or relating to the Fuel Spill, and the
subsequent clean-up and repairs associated therewith." However,
this general language cannot be reasonably understood as a request
for documents related to Chardón's insurance claim.

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