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
-2-
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.
-3-
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
-4-
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
-5-
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,
-6-
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
-7-
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
-8-
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
-9-
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
-10-
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).
-11-
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
-12-
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
-13-
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.
-14-
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
-15-
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
-16-
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).
-17-