Sunoco, Inc. v. Makol

United States Court of Appeals
For the First Circuit

No. 03-1780

SUNOCO, INC. (R&M),

Plaintiff, Appellant,

v.

NAIF MAKOL, JR., and MAKOL FAMILY LIMITED PARTNERSHIP,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Michael A. Ponsor, U.S. District Judge]

Before

Boudin, Chief Judge,

Lynch and Howard, Circuit Judges.

George J. Krueger with whom John B. Reilly and John Reilly &
Associates were on brief for appellant.
Keith A. Minoff with whom Robinson Donovan, P.C. was on brief
for appellees.

June 10, 2004
 BOUDIN, Chief Judge. This is an appeal by the plaintiff

appellant, Sunoco, Inc. (R&M) ("Sunoco") from a grant of summary

judgment in favor of defendants-appellees, Naif Makol, Jr., and the

associated Makol Family Limited Partnership (collectively,

"Makol"). The dispute centers on the proper interpretation of a

lease agreement governing a gas station and car wash in West

Springfield, Massachusetts. The origin is a set of transactions

involving Makol and a third party--F.L. Roberts & Co. ("Roberts").

In the early 1990s, Makol and Roberts owned adjacent

parcels of property in West Springfield. Roberts leased Makol's

lot and operated a gas station, convenience store, car wash, and

ATM on the joint parcels--it is not entirely clear what was on

which lot, but nothing turns on this. Roberts began renovating the

gas station complex in 1993, but encountered problems with West

Springfield's complex zoning regulations--specifically, a "mixed

ownership" restriction prohibiting any business in the relevant

area from being operated on land owned by two different parties.

To solve the zoning problem, Roberts and Makol executed

three agreements: a conveyance, a long-term lease, and an option to

purchase. Roberts first conveyed the title to his parcel to Makol

for nominal consideration. Then, on May 5, 1993, Makol leased both

parcels back to Roberts for a period of 21 years (the "lease

agreement"). On the same day, the parties signed a third document

(the "option agreement") giving Roberts the right to purchase both

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properties for $1.75 million, provided that he was not in default

under the lease agreement and that he informed Makol in writing

between March and September 2000. If Roberts did not exercise the

option during that period, his original plot would still revert

back to him in 2014, at the end of the 21 year lease--assuming he

was not "in default" under the lease agreement. In 1994, Naif

Makol assigned all his interests to Makol Family Limited

Partnership.

At the heart of this case is section 10 of the lease

agreement, which governs subleases and assignments. It provides

(we underline key language):

(a) Provided that the Lessee is not in default
hereunder, the Lessee shall be entitled to
assign this Lease or make a sublease for the
whole of the Premises as follows. The right to
assign or sublease shall be restricted to an
assignment or sublease in favor of Sun
Company, Inc. (R&M), or another major national
oil company (the "Assignee") whereby the
Assignee, by written agreement entered into
with the Lessor assumes all obligations and
liabilities of the Lessee under this Lease.
Notwithstanding any such assignment or
sublease, the Lessee shall remain additionally
liable to perform all of the obligations of
the Lessee under this Lease. The Lessee agrees
to provide the Lessor with written notice of
any such assignment or sublease thirty (30)
days in advance of the effective date thereof.

(b) Any attempted assignment or sublease which
does not fully comply with Paragraph 10(a)
shall be deemed a default hereunder, at the
option of the Lessor, and shall be null and
void and have no effect with regard to the
Lessor.

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 A month and a half after signing the lease and option

agreements, on June 21, 1993, Roberts assigned all of his rights in

the premises to Sunoco (we use Sun Company's current name), the

company mentioned in the lease. All parties agree this was a valid

assignment of the whole premises--proper notice was given to Makol,

Sunoco agreed in writing to be directly liable to Makol on all

lease obligations, and Roberts still remained liable as well.

Roberts also assigned Sunoco the option to purchase the entire

property between March and September 2000. Sunoco thus stepped

into the shoes of Roberts and became the "lessee" under the lease

agreement, consenting to be bound by its terms.

Two days later, on June 23, 1993, Sunoco and Roberts

entered into a three-year agreement under which Sunoco would

sublease back to Roberts the car wash facility--a portion of the

premises Roberts had just assigned to Sunoco. The parties dispute

whether Makol knew or should have known of this arrangement, but

assuredly Makol did not formally consent to the sublease. Indeed,

while all three parties had signed notarized forms consenting to

the Roberts-Sunoco assignment two days before, only Roberts and

Sunoco were parties to the car wash sublease.

It is also undisputed that the sublease did not comply

with the formal procedure for assigning the premises detailed in

section 10(a) of the lease agreement. The sublease was not a lease

"for the whole of the premises"; it was not to a major national oil

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company; and proper 30-day notice was not given to Makol. The

crucial question is whether the car wash sublease was nevertheless

permissible under the Makol-Roberts lease agreement. If not, the

sublease would not be valid and--more important to the parties--the

attempt to sublease would constitute a default under section 10(b),

posing a threat to Sunoco’s assigned right to purchase under the

option contract.

The sublease agreement gave complete control over the car

wash facility to Roberts; the contract specified that Sunoco did

not have any right "to exercise any control over, or to direct in

any respect the management or conduct of [Robert's] car wash

business," and it said that Roberts would be responsible for all

operating costs, taxes, and insurance. The first three-year

sublease was renewed for another three years in 1996, and three

more in 1999, on substantially the same terms as the first

sublease.

In the summer of 1999, Sunoco submitted a plan for

expansion of the gas station complex to the town zoning board, but

withdrew the plan in November 1999 after the town's building

commissioner suggested that the existing business complex might be

in violation of the town zoning ordinances. The main zoning

problem seems to have been that the car wash was a "second

independent business" leased and operated by a separate company on

the same parcel of land as the primary gas station complex. To get

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around this problem, Roberts and Sunoco executed a "management

agreement" under which Roberts would operate the car wash as an

"agent" of Sunoco (although a separate side-letter agreement made

clear that nothing about the parties' relationship would actually

change). The town's building commissioner dropped the zoning

issue, at least temporarily--he later expressed doubts about the

legitimacy of the arrangement when he learned about the side-letter

agreement.

Several months later, by letter dated November 23, 1999,

Makol informed Sunoco that both the car wash sublease and the

zoning violations constituted breaches of the lease agreement, and

the option to buy the premises was consequently terminated as a

result of the defaults. The original lease agreement provided that

breach of any of its "provisions, covenants or obligations" would,

if not cured within 30 days after notice, constitute a default of

the entire lease. The option agreement provided that a breach of

any terms of either the lease or option agreement would constitute

a default of the option.

Sunoco responded in writing by denying any default, but

made no additional effort to cure the alleged zoning violations.

Then, in June 2000, Sunoco wrote to Makol attempting to exercise

its option under the Makol-Roberts option agreement (assigned by

Roberts to Sunoco) to purchase the entire property for $1.75

million. Makol declined to proceed with the sale. In March 2001,

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Sunoco brought this diversity suit in federal court seeking

declaratory and injunctive relief requiring Makol to convey the

premises to Sunoco under the terms of the option agreement. Makol

counterclaimed, requesting damages for Sunoco's breach of contract

and arguing that Sunoco had committed unfair acts or practices in

violation of Mass. Gen. Laws ch. 93A.

The district court rejected Makol's 93A claim but granted

summary judgment to Makol on the breach of contract issue, ruling

that the undisputed evidence established that Sunoco breached the

lease agreement by entering into a car wash sublease with Roberts.

Since the lease was breached, Sunoco lost the option to purchase

both properties, and the only remaining question was the damage

caused to Makol by Sunoco's prohibited sublease to Roberts. The

parties presented this damages issue to a jury, which awarded

$231,000 to Makol--a sum that represented half of all money that

Sunoco had received from Roberts under the car wash sublease.

Sunoco now appeals, raising numerous objections to the

district court's interpretation of the lease agreement as well as

objections to the damages award. The damages issue depends on

whether there was evidence sufficient to permit a rational jury to

make the award and raises a related issue of admissibility of

evidence. We begin with the central contractual interpretation

question. Our review of the summary judgment ruling in favor of

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Makol is de novo. Rankin v. Allstate Ins. Co., 336 F.3d 8, 11 (1st

Cir. 2003).

The most straightforward reading of section 10 readily

supports a grant of summary judgment against Sunoco. Subsection

(a) permits the Lessee to "make a sublease for the whole of the

Premises" on certain conditions. Subsection (b) bars "[a]ny . . .

sublease which does not fully comply" with subsection (a). Sunoco

(after assuming the lease) unquestionably subleased the car wash

premises back to Roberts, and that sublease unquestionably does not

comply with the provisions of subsection (a). On this reading,

Sunoco violated a lease obligation it had assumed and so lost its

option rights under the explicit terms of the option agreement.

Sunoco’s main answer is that subsection (b)’s general

language--"[a]ny attempted assignment or sublease"--should be read

narrowly as a reference back to the supposed subject of subsection

(a), namely, an assignment or sublease of "the whole of the

Premises." So limited, subsection (b) would not address leases of

less than the whole of the premises; and, as the sublease of the

car wash was of less than the whole premises, subsection (b) would

be irrelevant. Sunoco supports the argument by citing cases in

Massachusetts and elsewhere that encourage a narrow reading of

lease terms that restrict subleasing.

Sunoco’s reading is strained as a matter of language and

highly improbable from the standpoint of likely intent. The

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language of subsection (a) confers permission on the holder of the

lease to assign the lease or to sublease the entire premises under

certain conditions. Read literally, subsection (b) bars "any"

other sublease--not just subleases of the entire premises that are

to someone other than a major oil company, that fail the assignment

condition, or that lack required notice. Thus, on a

straightforward reading, every sublease not specifically permitted

by (a) is barred by (b)--and the sublease back to Roberts was not

specifically permitted by (a).

Further, the "entire premises" language of subsection (a)

bespeaks a purpose to keep the property in the hands of a single

lessee--an objective that fits with the "mixed ownership" zoning

problem that had led to the original dispute with the city.

Further, in the district court’s words, Sunoco’s reading seemingly

would produce "an absurd result: so long as plaintiff retained

some fractional interest (even one percent) in the premises, the

Lease would not be violated by a sublease. Under plaintiff's

reasoning, the Lease would not have been violated, for example, if

the gas station, convenience store, car wash, ATM machine, and all

but one parking space had been subleased to a party or parties

unaffiliated with a 'major national oil company.'"

Massachusetts cases support a narrow reading of clauses

limiting subleasing, e.g., O'Keefe v. Kennedy, 57 Mass. 325, 327

(1849), but do not endorse one that deviates markedly from language

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and appears improbable. For example, in Marcelle, Inc. v. Sol. &

S. Marcus Co., 175 N.E. 83, 84-85 (Mass. 1931), the Supreme

Judicial Court evaluated a lease contract that prohibited

assignments but was silent as to subleases. The court concluded

that the prohibition on assignment, "read in the light of the

circumstances of the parties and the main purpose to be

accomplished," should be interpreted as prohibiting both

assignments and subleases. Id. at 85.

Cases from a few other jurisdictions may go slightly

further, perhaps narrowly construing prohibitions on subleasing so

as to permit a sublease of part of the premises. See Denecke v.

Henry F. Miller & Son, 119 N.W. 380, 384 (Iowa 1909); Spencer v.

Commercial Co., 71 P. 53, 54 (Wash. 1902). But even these cases

are not directly in point. Section 10 does not bar subleasing in

subsection (b). It defines (in subsection (a)) a specific

permitted sublease "for the whole" and then bars any other

sublease.

Sunoco has one fall-back argument worth discussing in

detail. In the spring of 1993 while the original transactions were

being framed, Roberts discussed with Makol the possible assignment

to Sunoco; this is obvious not only from depositions but from

section 10's reference to Sunoco as a specifically approved

assignee, subject to named conditions. But Sunoco also claims that

Makol was advised that--once Sunoco leased the whole premises from

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Roberts--Sunoco proposed as well to sublease back the car wash

portion to Roberts so he could go on operating that portion of his

former business.

Whether extrinsic evidence can be considered at all

depends both on canons of contract construction and on the related

substantive "parol evidence" rule.1 But we need not pursue these

legal issues because, even if the extrinsic evidence were

considered, it is clear it would not alter the result. What

Sunoco’s evidence shows at best is that Makol may have been told of

the planned lease-back (Makol flatly denies this) but not that he

consented to it.

The only directly pertinent deposition testimony came

from Joseph Maggi, one of Roberts' employees responsible for

negotiating the original lease with Makol. In response to

questions from Makol’s lawyer, Maggi said that he told Makol that--

assuming an assignment or lease of the property to Sunoco--Roberts

was "going to continue to operate the car wash" and that Roberts

was "going to sell and lease back certain facilities." Against

this background, Makol’s lawyer asked Maggi:

1
Massachusetts courts commonly say that extrinsic evidence is
admissible to resolve ambiguity, but not to contradict plain
language. See Robert Indus., Inc. v. Spencer, 291 N.E.2d 407, 409
(Mass. 1973). The related (and easily confused) parol evidence
rule limits proof of a supposed oral agreement prior to or
contemporaneous with a written contract depending on how fully the
written document is "integrated." See Restatement (Second) of
Contracts § 213 (1981).

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 Q. Was there ever any discussion between the
parties in which this issue was discussed, that
is, if we do this Car Wash lease, between us,
is this going to perhaps violate section 10 of
the lease?

A. I would --

Q. Were you ever part of any discussion on
that?

A. No, I would put it a little differently.
It was in preparation of [Paragraph] ten that
the contemplation of the Car Wash Lease and
the reason for the use of the word whole.

Q. You mean the Car Wash Lease between
Roberts and Sunoco was already contemplated
when paragraph 10 was drafted?

A. Oh, sure.

Q. Well, if that’s the case, why wasn't the
Car Wash Lease specifically identified as an
approved sublease?

[Objection]

That the parties shall be permitted to enter
into a Car Wash Lease, notwithstanding these
provisions?

[Objection]

A. It wasn’t necessary based on this just as
the sublease with what was then BayBank or
Bank of New England or whoever they were at
the time, it wasn’t contemplated that those
needed permission of the lessor either.

There are three different facets to this deposition

testimony. The first--the claim that Makol was told that a lease

back to Roberts was contemplated--is a factual proposition.

Although denied by Makol, we accept the proposition as true for

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purposes of summary judgment on the ground that a jury might

believe the testimony of Maggi. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 247-50 (1986). Yet this proposition does not show

that Makol consented to such a sublease or agreed it could be done

under section 10 without further permission from Makol. Makol’s

silence might at best be used for an estoppel argument--which

Sunoco may hint at but does not develop.

The second facet of the testimony quoted above is quite

different. In substance, Maggi offers a construction of section 10

fully consistent with what Sunoco urges in this case--that it dealt

only with leases of the entire property--but Maggi provides no

facts showing that Makol or even Roberts endorsed that

interpretation at the time. The passive phrase "it wasn’t

contemplated" may be intended to assert that Makol so understood

section 10; but if so read, it is merely a naked and conclusory

assertion which is entitled to no weight. See Fleet Nat'l Bank v.

H&D Entm't, Inc., 96 F.3d 532, 540 (1st Cir. 1996); Favorito v.

Pannell, 27 F.3d 716, 721-22 (1st Cir. 1994).

Finally, Maggi’s testimony refers to the fact that a bank

had earlier subleased a small portion of the premises for an ATM

machine, and yet there was no reference in section 10 or elsewhere

to the continuation of this sublease. But whatever mild inference2

2
The bank lease predated the Makol-Roberts arrangements by 13
years. The original lease to Roberts was thus subject to that
sublease and would not have been impacted by section 10 at the

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might be drawn in Sunoco's favor is easily offset by another lease

transaction; later on, Makol’s express consent (in exchange for a

share of the proceeds) was in fact sought when Sunoco aimed to

sublease a portion of the premises to a third party for use as

parking spaces (as discussed more fully below).

Sunoco offers on appeal a number of other arguments

against the district court’s summary judgment determination--that

Makol did not offer the required period to cure the default, that

restrictions on subleases do not apply to leases back to the

original lessee, and that equitable relief should have been granted

to prevent a windfall or forfeiture. These arguments were not

adequately made in opposition to summary judgment--it is not enough

to record facts from which an argument might be made,3 United

States v. Slade, 980 F.2d 27, 30-31 (1st Cir. 1992)--and there is

nothing close to plain error. Compare Chestnut v. City of Lowell,

305 F.3d 18, 20 (1st Cir. 2002) (en banc).

This brings us to Sunoco’s appeal from the award of

damages. In substance, the jury awarded Makol half of the amount

of rent that Roberts had paid to Sunoco from the time of the car

wash sublease in 1993 to the date of trial. The jury’s underlying

outset at all.
3
Sunoco came closest by including in its opposition to summary
judgment in the district court that Makol's claim would give him "a
significant, unjust windfall." But the cases cited and the more
impressive effort to develop a forfeiture claim on appeal come too
late.

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premise was likely that Makol would have imposed such a toll if

Sunoco had sought permission to sublease the car wash back to

Roberts. The jury was probably led to this premise by evidence

offered by Makol at trial of a failed negotiation over the possible

sublease of parking spaces. The evidence, received over Sunoco’s

objection, was as follows.

In September 1994, a local restaurant owner, Ronald

Abdow, asked Sunoco if he could sublease some parking spaces. They

worked out a deal to rent Abdow ten spaces for $300 a month, and

Sunoco drafted a lease agreement and sent it (unsigned) to Abdow

for his signature. The draft agreement said that it was "entered

into by both parties with expressed approval of Mr. Naif Makol for

which he will receive one half (1/2) of the monthly consideration"

and that the payments to Makol "shall not be deemed as setting

precedent." Abdow signed the lease and returned it, but Sunoco

then told Abdow the deal was off for "corporate reasons."

In the trial on damages, Sunoco filed a motion in limine

to exclude all evidence relating to the parking sublease, arguing

that this evidence would be extremely prejudicial and was not

probative given the disclaimer about precedent, the fact that the

contract was never signed by the Sunoco board, and the disparity in

price and subject matter between the parking and car wash

subleases. The district court rejected this motion, finding that

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the evidence was "sufficiently relevant, and I think when presented

in the context is not unfairly prejudicial."

The capacity of the parking space draft agreement to

mislead is obvious: splitting a small payment ($300 per month) for

unused parking spaces is one thing; extrapolating to half of the

rent paid by a substantial business (around $3500 a month) is quite

another. On the other hand, there is not a lot of reliable

evidence as to what Makol might have charged, and Sunoco paid, for

waiver of section 10 rights so as to permit the car wash sublease.

Sunoco was free to argue to the jury (and did so argue) that the

parking space draft should be given little weight.

To admit or exclude such evidence is precisely the kind

of judgment, balancing limited relevance against arguable

prejudice, that is reviewed only for abuse of discretion. McMillan

v. Mass. Soc. for Prevention of Cruelty to Animals, 140 F.3d 288,

300 (1st Cir. 1998), cert. denied, 525 U.S. 1104 (1999). The

district court’s call was within the range of reasonableness. The

fact that Sunoco's draft said it was not precedent does not prevent

Makol from using it for whatever it was worth, and if the

unexplained rejection by Sunoco’s board bore on the weight to

accord the draft, Sunoco was free to explain the reasons.

With this evidence properly admitted, there was (contrary

to Sunoco’s next argument) enough evidence to support the jury's

award of damages to Makol. True, the jury could not have been

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certain exactly what percent of rent Makol would have demanded, but

it knew how much the car wash sublease was worth and that on a past

occasion Makol had demanded 50 percent of the profits from a

sublease. Makol testified that he would have demanded the same 50-

50 split for a car wash lease, and that this type of split was

"customary in real estate dealings of this nature." This is enough

for a reasonable approximation, especially because the lack of

actual negotiations is due to Sunoco's own breach.4

Finally, Sunoco asserts briefly that even though the

lease agreement provides that Makol is entitled to attorney's fees

necessary to "enforce" its rights under the contract, all of the

attorney's fees awarded by the district court should be vacated

since Makol's enforcement action was "pretextual." This argument

is hardly promising but in any event it is not seriously developed-

-not a single citation to either relevant law or the record is

provided--and is therefore waived. Mass. Sch. of Law at Andover v.

Am. Bar Ass'n, 142 F.3d 26, 43 (1st Cir. 1998).

Affirmed.

4
Fiori v. Truck Drivers, Local 170, 354 F.3d 84, 88 (1st Cir.
2004); Nat'l Merch. Corp. v. Leyden, 348 N.E.2d 771, 774 (Mass.
1976); Air Tech. Corp. v. Gen. Elec. Co., 199 N.E.2d 538, 548
(1964).

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