James DeJong, Sr.; James DeJong, Jr.; Appellees/Cross-Appellants. v. Sioux Center, Iowa; Appellants/Cross-Appellees, Cotter & Company, Objector.
Nos. 97-3900/97-4015
United States Court of Appeals FOR THE EIGHTH CIRCUIT
February 24, 1999
Submitted: November 17, 1998
Before BEAM and LAY, Circuit Judges, and SIPPEL, District Judge.
BEAM, Circuit Judge.
James DeJong, Sr. and his son, James DeJong, Jr., leased space and opened a hardware store in a new city-owned shopping center. Although the DeJongs opened their store, the rest of the shopping center remained under construction for the next
I. BACKGROUND
We relate the facts in a light most favorable to the jury verdict. See Norton v. Caremark, Inc., 20 F.3d 330, 334 (8th Cir. 1994). James DeJong, Sr. (James Sr.) had worked in the real estate industry in Lansing, Illinois, for twenty-seven years. His son, James DeJong, Jr. (James Jr.) worked in a hardware store throughout high school, earned a degree in business administration at Dordt College in Sioux Center, Iowa, then joined his father in the real estate business. In late 1989, the DeJongs began to explore the possibility of owning and operating a hardware store. They learned that the DeRuyter hardware store in Sioux Center was for sale. The DeRuyter building was scheduled to be torn down to make room for the parking area of a new mall planned by the City3 and Mr. DeRuyter was going to retire. The DeJongs offered to buy DeRuyter‘s inventory and hire his store manager when the business closed.
As the negotiations between the DeJongs, assisted by True Value, and the City continued, the DeJongs were given a promotional pamphlet stating that the mall would open in the spring of 1991. The DeJongs were also told that the opening date had been set for July 1991. The City sent a leasе to the DeJongs and to True Value for their review on behalf of the DeJongs.
In November 1990, the DeJongs learned that DeRuyter had decided not to close his hardware store and sell the inventory to them, but instead sold the business as a going concern to the local Co-op which planned to move the store to a different location and continue operating the hardware business. Because this would result in more competition than they had initially anticipated, the DeJongs decided to call off the deal. On November 21, the mayor of Sioux Center called Jamеs Sr. in an effort to get the DeJongs to reconsider. He stated that there was a significant loyalty to downtown merchants, and that the DeJongs should not be concerned about competition from the Co-op, which was on the “wrong side of the tracks.” The mayor
The DeJongs consulted Steinert of True Value, who stated that, considering the market demographics, the DeJongs should be able to attain the conservative sales projection of $375,000 even with competition from the Co-op store. The DeJongs signed a standard form lease with the City in February 1991. The lease called for an opening datе of “[a]pproximately 1 September 1991.” In March, the DeJongs received a newsletter from the mall‘s leasing agent. It stated that the mall “will be built as one unit with expected grand opening scheduled for approximately October 1, 1991.”
After selling two homes and his business, James Sr. moved to Sioux Center with James Jr. and their respective families in late July 1991. On arrival, the DeJongs discovered that the mall would not be completed on time. Although there were walls in place, there were no doors or windows in the mall entrances, and the floors were nothing but dirt. There was no wall or door betwеen the DeJongs’ space and the rest
The DeJongs finished the interior of their store and eventually opened on November 6, 1991. There were no other tenants doing business at the time. There remained no doors or windows at the mall entrances and no concrete floors in the corridors. The DeJongs had to construct an entryway and door made of plywood. They had to hang plastic sheets across the entryway between the store and the interior of the mall in order to prevent cold wind and dirt from blowing in from the rest of the mall. The parking lot was unlit as well as unfinished. The buildings that were supposed to have been razed to make room for the mall parking lot were still standing, effectively blocking any view of the mall and the DeJongs’ store from the main street in town. These buildings were not demolished until sometime in December 1991. Construction continued slowly. In May and June of 1992, much of the front parking area remained unpaved, scaffolding surrounded the marquee being built, and there were piles of dirt, construction tape and рlywood signs along the roads abutting the mall. The mall‘s grand opening was finally held on July 16, 1992, more than nine months after the planned event.
From the time the DeJongs’ store opened, customer traffic and sales were far below expectations. The store lost money every month. In June 1992, the DeJongs decided to liquidate their inventory and close the store. They had been open for less than a year, and rather than being on track to lose the projected $12,000, the store had already lost over $150,000, and James Sr. was deeply in debt.
The DeJongs attribute their business failure and financial losses directly to the fact that the mall was not complete. They sued the City, claiming damages under several theories; fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and breach of contract. The fraudulent misrepresentation, promissory estoppel, and contract claims were presented to the jury which found for
II. DISCUSSION
A. Ambiguity
The initial section of the lease entitled “Basic Lease Information,” contains the essential terms of the contract. It identifies the parties, the mall (known as “Thе Centre“), the amount of basic annual rent due during different time periods, the amount of percentage rent, and common area charges. The term “Rent Commencement Date” is defined as “Approximately 1 September 1991 or 60 days after Landlord turns building over to tenant for set up.” On the next line is the term “Opening Date,” which is stated to be “Approximately 1 September 1991.” The DeJongs argue that the term “opening date” refers to the opening of the mall, the date the City committed to completing the mall. The City claims that it had no obligation to complete the mall by a certain date, and that the term refers only to the opening of the DeJong‘s store.
A federal court sitting in diversity jurisdiction applies the law of the forum state, in this case, Iowa. See First Bank of Marietta v. Hogge, 161 F.3d 506, 510 (8th Cir. 1998). Whether a term in a contract is ambiguous is a question of law which we review de novo. See Mohamed v. Unum Life Ins. Co., 129 F.3d 478, 480 (8th Cir. 1997). Under Iowa law, the cardinal rule of contract construction is that the intent of
The district court submitted the issue of interpretation to the jury as part of the DeJongs’ contract claim. The jury found for the DeJongs on the contraсt claim, i.e. that the City breached the contract by failing to have the mall complete and open by approximately September 1, 1991. The court held a hearing on post-trial motions, during which both parties argued the issue of ambiguity. The court found that the term was ambiguous as a matter of law and allowed the jury‘s verdict to stand. See DeJong v. City of Sioux Center, 980 F. Supp. 1010, 1016 (N.D. Iowa 1997). The City argues that the district court erred by failing to apply the pertinent rules of interpretation before concluding the term “opening date” was ambiguous, and that the rules of interpretation, properly applied, would removе any ambiguity, thus leaving no issue for the jury.
We agree with the district court‘s finding that the term “opening date” is ambiguous. Contrary to the City‘s assertion, no rule of interpretation effectively removes the ambiguity. The application of the pertinent rules of interpretation merely highlights the ambiguity of the term. The first rule of interpretation is to examine the plain meaning of the term. See Iowa Fuel, 471 N.W.2d at 862-63. By its plain meaning, “opening date” does not specifically refer to the opening of the mall or the
It is well established that contracts should be interpreted as a whole, and contractual terms should be interpreted in the context in which they are used rather than in isolation. See Iowa Fuel, 471 N.W.2d at 863. In the same “basic information” section of the lease where the term “opening date” is defined as “[a]pproximately 1 September 1991,” the lease details the timing and calculations for three different types of payment. The first is the annual rent, based on square footage, which begins on the “rent commencement date.” The others are the percentage rent, and the common area charges. The DeJongs obligations for these amounts begin with the opening date. The percentage rent is based on sales volume (a set percent of sales over a minimum sales figure each year) and necessarily assumes that the tenant must be open for business in order to have sales. This could be read to infer that “opening date” indicates the opening of the store, but it is not the necessary conclusion. For the City‘s interpretation to prevail, one must assume that a tenant was expected to be open for business in a largely incomplete mall. There is no indication in the lease that such a scenario was contemplated by either party. The fact that the opening date triggers the common area charges is similarly inсonclusive. On one hand, a logical inference is that, prior to the opening of the store, the tenant, because it has no customers, is not utilizing any of the common areas. On the other hand, if the mall is not open, there are no completed common areas for the tenant to use, thus no obligation to pay the charges.
The City argues that a clause in article two of the lease conclusively indicates that “opening date” means the date the tenant opens for business. The clause reads
Another well-established rule of contract interpretation is that an “interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.” Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 26 (Iowa 1978). The City argues that if “opening date” is interpreted to mean the opening of the mall, then the automatic termination clause is rendered superfluous. The termination сlause reads: “In the event that either Premises [defined in the lease as the DeJongs’ space 304] are not ready for occupancy or the Rent Commencement Date has not occurred within six (6) months following September 1, 1991, this Lease will automatically become null & void; . . . .” The City‘s reasoning is flawed. By its plain language, this clause deals solely with the possibility of the tenant‘s space not being ready. Nothing is mentioned about the common areas or the rest of the mall. This rule of interpretation cited by the City actually better supports the DeJongs’ interpretation. If, as the City argues, the term “opening date” does not mean the opening of the mall, then under the lease, the city has no obligation to actually build a mall, merely the single space leased by the DeJongs. This would not only render superfluous those portions of the lease pertaining to the common areas, but the entire lease would be unreasonable as well. The lease was negotiated as, and purports to be, a lease for a space in a mall, with the attendant synergy of retail activity among the
In summary, the application of the above rules is inconclusive at best, and demonstrates that the term “opening date” is ambiguous. “If the language is found to be ambiguous, extraneous evidence is admissible as an aid to interpretation of the contract.” Dickson, 567 N.W.2d at 430. In Iowa, interpretation of contractual terms is an issue for the court unless it turns on extrinsic evidence or a choice among reasonable inferences. See Iowa-Illinois Gas & Elec. Co. v. Black & Veatch, 497 N.W.2d 821, 825 (Iowa 1993). Whether the City breached the contract depends on the term‘s interpretation, thus the issue was properly presented to the jury. Id. Consequently, the use of extrinsic evidence on the issue was proper. See Kroblin v. RDR Motels, Inc., 347 N.W.2d 430, 433 (Iowa 1984) (“[E]xtrinsic evidence is admissible as an aid to interpretation when it sheds light on the situation of the parties, antecedent negotiations, the attendant circumstances, and the objects they were striving to attain.“).
The jury was instructed that ambiguous terms are construed against the drafter. This is a standard rule of Iowa contract law. See, e.g., Iowa Fuel, 471 N.W.2d at 863; Archibald v. Midwest Paper Stock Co., 176 N.W.2d 761, 764 (Iowa 1970). The City now argues that this familiar rule of contra proferentem should not apply in this case. For support, the City relies on Kinney v. Capital-Strauss, Inc., 207 N.W.2d 574 (Iowa 1973), which states that ambiguities should not bе automatically construed against the drafter when “the instrument is prepared with the aid and approval, and under scrutiny of legal counsel for both of the contracting parties.” Id. at 577. The argument has little merit. The DeJongs were presented with a standard form lease, and although it was reviewed by the DeJongs’ attorney and by representatives of True Value, only five paragraphs of the twenty-page document were crossed out and names, dates, and amounts were filled in in the basic information section. This cannot place the contract within the scope of Kinney. Simply because a few
Since we hold that the lease is ambiguous, the determination of which meaning is given to that term by the jury is a question of fact, Mohamed, 129 F.3d at 480, which we review only to determine whether the verdict is supported by substantial evidence, viewed in the light most favorable to sustaining the verdict. See Norton, 20 F.3d at 337. Given the definition of ambiguity, the proffered interpretations of both parties were reasonable. Ambiguity allows the consideration of extrinsic evidence. Based upon the circumstances surrounding the lease, and the prior representations made by the City concerning the mall‘s opening date, a jury could easily understand the term in the lease to be another representation pertaining to the opening of the mall, an issue at the heart of the agreement. In short, the factual finding by the jury, that the term “opening date” referred to the opening of the mall, is supported by substаntial evidence and we find no reason to set it aside.
B. Causation
The City also attacks the damage award, claiming that the evidence presented was insufficient, leaving the jury to speculate as to both causation and amount. The DeJongs needed to establish several elements to complete the causal chain: (1) that absent the breach, they would have had sufficient sales to remain in business; (2) the lack of customer traffic in the mall was due to the fact that the mall remained incomplete and under construction; (3) the lower than anticipated sales were substantially caused by lower than anticipated customer traffic in the mall; and (4) they were forced to close their business and suffered losses because of lower than anticipated sales.
Viewed in the light most favorable to the verdict, there is substantial evidence to support the jury‘s finding that the City‘s breach was the proximate cause of the DeJongs’ losses. The mall remained unfinished and under construction well into the summer of 1992, and maintained the appeаrance of a construction site rather than an open and inviting retail shopping center. The jury was shown video footage of both the interior and exterior of the mall as it existed and appeared at various times from September 1991 through June 1992. The jury also heard testimony regarding the condition of the mall and the attendant lack of customer traffic from the DeJongs and others.
The City argues that, because there was no statistical data presented regarding customer traffic at the mall or the DeJongs’ store, and no testimony directly showing that residents of Sioux Cеnter were unaware that the DeJongs’ store was open, the jury was necessarily forced to speculate as to causation. The City confuses speculation with reliance on common sense and personal experience. Direct evidence and statistical data are not required. As explained above, the jury was free to find circumstantial evidence sufficient to overcome the alternative possible causes for the DeJongs’ failure that the City advanced. Given the evidence presented on the
C. Lost Sales
The City also claims that the “new business rule” precludes the jury from arriving at an amount for damages without speculation. The City‘s argument is misрlaced. The new business rule generally precludes recovery of the anticipated profits or revenues of new commercial enterprises because they are deemed too uncertain and speculative. See, e.g., Harsha v. State Savings Bank, 346 N.W.2d 791, 797 (Iowa 1984). However, the DeJongs do not claim lost profits or lost sales, rather they claim the amount of their investment that was lost due to unrealized sales.5 There is nothing speculative about the amount of investment lost by the DeJongs. Testimony by the DeJongs as well as financial statements entered into evidence establish the amount of the investment lost.
The amount оf anticipated profits or sales not realized by the DeJongs is actually the first element of the causal chain—that but for the breach, the DeJongs would have enjoyed sufficient sales to remain open. The City has offered no cases in Iowa or any other state where the new business rule has been expressly applied to prevent a plaintiff from establishing an element of causation, as opposed to the quantity of damages, and we decline to expand its application. We believe that the
Second, assuming arguendo that the establishment of anticipаted revenues of a new enterprise as a causal element is subject to the application of the new business rule, as the City suggests, the evidence presented would defeat the rule under Iowa law. As a general rule, anticipated profits from new businesses are not recoverable because they are too uncertain and speculative, however, “if factual data [is] presented which furnish[es] a basis for compilation of probable loss of profits, evidence of future profits should be admitted and its weight, if any, should be left to the jury.” Harsha, 346 N.W.2d at 798. In Harsha, the plaintiff was allowed to establish, through expert testimony, the lost profits suffered by a start-up feed lot when a bank reneged on a promise to loan money. The expert explained that, in forming his opinion, he considered the market, other similar operations, actions of the bank, newness of the business, effect of property management, and work habits. He pointed out that there was guidance available if management skills were lacking. The court held that “[i]n this case we have projections of profitability based on experience in the industry; the expert‘s сonsideration of the projections and his own experience with new business; the willingness of Harsha to put in the time and effort needed.” Id. at 798-99.
This case is analogous to Harsha. Steinert, the retail representative for True Value, testified at length. His sale projections were based on market research, the demographics of Sioux Center, his personal experience, and the experience of all the
D. Promissory Estoppel
The DeJongs appeal the district court‘s grant of judgment as a matter of law to the City on the promissory estoppel claim. We agree with the district court that, under Iowa law, the existence of a valid integrated contract between the parties precludes a claim of promissory estoppel to essentially inject terms or conditions into the contract. We can add nothing to the district court‘s well-reasoned discussion on this issue. See DeJong, 980 F. Supp. at 1013-14.
III. CONCLUSION
For the above reasons, the order of the district court is affirmed.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.