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Case 1:12-cv-00158-JTN Doc #43 Filed 07/11/13 Page 1 of 11 Page ID#474

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

EAGLE NUMBER THREE LLC,

Plaintiff/Counter-Defendant,

Case No. 1:12-cv-158

v.

HON. JANET T. NEFF

KONICA MINOLTA HOLDINGS
U.S.A., INC.,

Defendant/Counter-Claimant.
____________________________________/

OPINION

Plaintiff/Counter-Defendant Eagle Number Three LLC (“Eagle Three”) filed this breach of

contract action alleging that in December 2011 Defendant/Counter-Claimant Konica Minolta

Holdings U.S.A., Inc. (“Konica Minolta”) wrongfully terminated a ten-year lease with Eagle Three

for commercial office space in Grand Rapids, Michigan, the term of which did not expire until

December 2016.1 Konica Minolta filed a counter-claim for unjust enrichment based on a January

4, 2012 wire transfer of $28,799.15 for January 2012 rent, claiming it was a mistaken payment

because Konica Minolta vacated the subject premises before December 31, 2011.

Pending before the Court is Konica Minolta’s Motion for Partial Summary Judgment (Dkt

40), seeking a determination that Konica Minolta possessed the right to terminate the lease anytime

after five years pursuant to Paragraph 37 of the Lease Agreement. Eagle Three has filed a Response

(Dkt 41), and Konica Minolta has filed a Reply (Dkt 42). Having fully considered the parties’ briefs

1Eagle Three filed this action in state court, and Konica Minolta removed the case to this

Court pursuant to 28 U.S.C. § 1332(a) based on diversity jurisdiction.

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and the record, the Court concludes that oral argument is unnecessary to resolve the pending motion.

See W.D. Mich. LCivR 7.2(d). For the reasons that follow, the Court grants the motion.

I. Background Facts

On September 15, 2006, Eagle Three and Konica Minolta entered into a lease for

approximately 21,176 square feet of office space on the third floor of a building at 5800 Foremost

Drive, S.E.,2 at a cost of approximately $25,587.67 per month (“Lease or “Lease Agreement,”

Compl. Ex. A, ¶ 2; Counter-cl., Dkt 5, Ex. 2 ¶¶ 7-8). The term of the Lease began December 15,

2006 (JSUF ¶ 4). An Amendment to the original Lease was signed about the same time, on

September 16, 2006 (“Amendment”), obligating Eagle Three to use its best efforts to obtain a

certificate of occupancy within 90 days (Compl. ¶ 9; Amend., Dkt 1-1 at 29).

According to the Complaint, the Lease required Eagle Three to perform substantial physical

improvements to the tenancy prior to occupancy by Konica Minolta, and Konica Minolta understood

that Eagle Three had to refinance the Building in order to obtain the financing for the improvements

(Compl. ¶¶ 8, 10). Eagle Three alleges that as an inducement for it to obtain and Fifth Third Bank

to provide such financing, Konica Minolta agreed to and later executed on January 31, 2007, a

Tenant’s Estoppel Certificate (Compl., Ex. C, herein also “Estoppel Agreement”) and a

Subordination/Non-Disturbance Agreement (SNDA) (id., Ex. D), whereby Konica Minolta

acknowledged that the term of the Lease would run until December 14, 2016 (Term), and that

Konica Minolta would not exercise any right to terminate the Lease prior to the expiration of the

Term (Compl. ¶ 11). Eagle Three alleges that together, the Lease, Amendment, Tenant’s Estoppel

2The parties’ Joint Statement of Uncontroverted Facts (JSUF) (Dkt 40-3), ¶ 1, identifies the
lease location as 5600 Foremost Drive; however, the Lease Agreement and numerous documentary
exhibits clearly identify the property as located at 5800 Foremost Drive.

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Certificate, and SNDA constituted the parties’ contract/lease regarding the tenancy, with the latter

two documents superseding any inconsistent provisions in the former two (id. ¶ 12).

Eagle Three alleges that no written notice of termination or cancellation of the Lease has

been provided by Konica Minolta, and the Lease remains in effect through its Term (Compl. ¶ 14).

Nonetheless, on September 7, 2011, Konica Minolta sent Eagle Three an e-mail indicating that it

was terminating the Lease effective December 14, 2011 (id. ¶ 15). Eagle Three further alleges that

Konica Minolta was obligated to pay the monthly rent for the period December 15, 2011 to January

14, 2012 by December 15, 2011, but that Konica Minolta had a practice of paying the monthly rent

via electronic transfer by the 4th of each calendar month (being approximately 19 days after the due

date) (id. ¶ 17). Eagle Three alleges that it is entitled to accelerate all installments of rent payable

under the Lease for the balance of the Term in the amount of $1,889,825, plus a late charge of 5%

of the accelerated amount ($94,491.25), interest at the rate of 24% per annum ($37,796.50 per

month), previous rent increases that were never paid, and costs and attorneys fees incurred to enforce

the Lease (id. ¶¶ 21-22). Additionally, Eagle Three claims it is entitled to consequential damages

resulting from Eagle Three’s failure to meet the terms of its lender’s financing for the Building,

which may include, but is not limited to, penalties, higher interest rates, additional refinancing costs,

foreclosure of the Building, attorneys fees and other costs (id. ¶ 23).

In its Counter-claim, Konica Minolta alleges that pursuant to the terms of the Lease, it had

the right to terminate the Lease at any point after the expiration of the first five years, with at least

six months written notice (Counter-cl. ¶ 9, citing Lease ¶ 37). If Eagle Three was unable to re-lease

the premises within twelve months of Konica Minolta vacating, Konica Minolta would be obligated

to pay Eagle Three $165,745.45 for the unamortized tenant improvements (id. ¶ 10). Further, on or

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about December 14, 2010, Konica Minolta hand-delivered to Eagle Three a notice indicating Konica

Minolta’s intent to invoke the Lease Agreement’s termination provisions and to vacate the building

on or before December 31, 2011 (id. ¶ 12). Konica Minolta vacated the lease premises before

December 31, 2011 (id. ¶ 14).

II. Legal Standard

A moving party is entitled to a grant of its motion for summary judgment “if the movant

shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment

as a matter of law.” FED. R. CIV. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

247-48 (1986). The court must consider the evidence and all reasonable inferences in favor of the

nonmoving party. U.S. S.E.C. v. Sierra Brokerage Servs., Inc., 712 F.3d 321, 327 (6th Cir. 2013)

(quoting Tysinger v. Police Dep’t of City of Zanesville, 463 F.3d 569, 572 (6th Cir. 2006)).

The moving party has the initial burden of showing there is no dispute regarding any genuine

issue of material fact. Jakubowski v. Christ Hosp., Inc., 627 F.3d 195, 200 (6th Cir. 2010). The

burden then “shifts to the nonmoving party, who must present some ‘specific facts showing that

there is a genuine issue for trial.’” Id. (quoting Anderson, 477 U.S. at 248). “A genuine dispute

concerns evidence ‘upon which a reasonable jury could return a verdict in favor of the non-moving

party.’ A factual dispute is material only if it could affect the outcome of the suit under the

governing law.” Fuhr v. Hazel Park Sch. Dist., 710 F.3d 668, 673 (6th Cir. 2013) (quoting Tysinger,

463 F.3d at 572). “The ultimate question is ‘whether the evidence presents a sufficient disagreement

to require submission to a jury or whether it is so one-sided that one party must prevail as a matter

of law.’” Back v. Nestlé USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S.

at 251-52).

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III. Analysis

A. Lease Agreement

The parties’ primary dispute concerns the interpretation of Paragraph 37 of the Lease and

Konica Minolta’s right to terminate the lease prior to its full ten-year term. Paragraph 37 provides:

37. Termination. Tenant has the right to terminate the Lease after five (5)
years, with at least six (6) months written notice and, if required after twelve months,
as set forth below, the payment of $165,745.45 for the unamortized tenant
improvements (see attached Exhibit “E”). Tenant shall not have to make this
payment unless the Landlord has not released the space within twelve (12) months
of the Tenant vacating the premises. If the Landlord has released the space within
twelve (12) months of the Tenant vacating the space, then the Tenant shall owe the
Landlord for the Tenant improvements necessary for the new tenant to move into the
Suite, up to $165,745.45.

Konica Minolta contends that the plain language of Paragraph 37 clearly and unequivocally

states that Konica Minolta may terminate the Lease at any time after the expiration of the first five

years of the lease, so long as it provides Eagle Three notice at least six months prior to termination,

and pays the specified amount for unamortized improvements if Eagle Three is unable to find a

substitute tenant within twelve months.3 The Court agrees.

The parties do not dispute that this case is governed by Michigan law. See Wonderland

Shopping Ctr. Venture Ltd. P’ship v. CDC Mortg. Capital, Inc., 274 F.3d 1085, 1092 (6th Cir. 2001)

(the substantive law of Michigan applies in a diversity action in a matter filed in a Michigan district

court). Under Michigan law, the primary goal in construing a contract “is to ascertain and enforce

the intent of the parties.” Id. (citing Rasheed v. Chrysler Corp., 517 N.W.2d 19, 29 n.28 (Mich.

1994); Sobczak v. Kotwicki, 79 N.W.2d 471, 475 (Mich. 1956)). However, a fundamental tenet of

3Konica Minolta states that on December 13, 2012, it paid Eagle Three the sum of
$136,946.30 for such unamortized improvements, which was the full amount due under the Lease
minus the mistaken January 2012 rent payment of $28,799.15.

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Michigan jurisprudence is that “unambiguous contracts are not open to judicial construction and

must be enforced as written.” Rory v. Continental Ins. Co., 703 N.W.2d 23, 30 (Mich. 2005)

(footnote omitted). “Courts enforce contracts according to their unambiguous terms because doing

so respects the freedom of individuals freely to arrange their affairs via contract.” Id.

As written, the plain language of the lease states that Konica Minolta has the unqualified

right to terminate the Lease after five years, with at least six (6) months written notice. Contrary to

Eagle Three’s arguments, there is nothing ambiguous about this contract language. “A contract is

ambiguous only if its language is reasonably susceptible to more than one interpretation.” Gortney

v. Norfolk & Western Ry. Co., 549 N.W.2d 612, 615 (Mich. Ct. App. 1996).

The Court is not persuaded by Eagle Three’s contention that the term “after” in Paragraph

37 is a “broad term” that can reasonably be read to mean (1) “any time” after five years, as Konica

Minolta argues, or (2) “immediately” after five years, as Eagle Three argues. The plain meaning of

the word “after” cannot be ignored to adopt the additional restriction sought by Eagle Three.

Contract language must be construed according to its plain and ordinary meaning, and technical or

strained constructions are to be avoided. UAW-GM Human Resource Ctr. v. KSL Recreation Corp.,

579 N.W.2d 411, 414 (Mich. Ct. App. 1998); see also Wright v. DaimlerChrysler Corp., 220 F.

Supp. 2d 832, 843 (E.D. Mich. 2002).4 The Lease states simply that Konica Minolta has the right

to terminate it after five years. The clear language of the Lease does not support Eagle Three’s

contention that Konica Minolta held only a one-time right to terminate the Lease early after the fifth

anniversary of the Lease.

4In the same sense, if the language were “before” five years, one could not reasonably
interpret the lease to mean the lease must be terminated “immediately” before five years, which is
clearly a strained construction as opposed to simply “any time” before.

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Because the Court does not find Eagle Three’s proposed construction reasonable, the Court

need not resort to further rules of contract construction to resolve the parties’ dispute.5 The Court

is obligated to constrain its analysis to the contract document itself:

“We must look for the intent of the parties in the words used in the
instrument. This court does not have the right to make a different contract for the
parties or to look to extrinsic testimony to determine their intent when the words
used by them are clear and unambiguous and have a definite meaning.”
[Sheldon-Seatz, Inc. v. Coles, 319 Mich. 401, 406-407, 29 N.W.2d 832 (1947),
quoting Michigan Chandelier Co. v. Morse, 297 Mich. 41, 49, 297 N.W. 64 (1941).]

UAW-GM Human Resource Ctr., 579 N.W.2d at 414; see also Royal Prop. Group, LLC v. Prime

Ins. Syndicate, Inc., 706 N.W.2d 426, 432 (Mich. Ct. App. 2005) (the language of the contract is the

best means of determining the parties’ intent). “[U]nambiguous contracts are not open to judicial

construction and must be enforced as written.” Rory, 703 N.W.2d at 30.

Even if the Court were to consider the extrinsic evidence cited by Eagle Three, the Court

does not find that such evidence supports Eagle Three’s construction of the Lease. Eagle Three cites

testimony of Konica Minolta’s President, Stephen Schuster, who signed the Lease, and Jan Bomers,

Konica Minolta’s real estate agent, which Eagle Three contends does not support Konica Minolta’s

interpretation of Paragraph 37, but instead is consistent with Eagle Three’s interpretation that early

termination was a one-time option that had to be exercised or was lost. Eagle Three argues that this

interpretation is further supported by the fixed amount set for the 60-month lease termination,

$165,745.45, which only makes sense if the “kick-out” is exercised at the 60-month mark. However,

5For instance, although the parties devote much argument to the issue of which party drafted
Paragraph 37 for purposes of construing the language against the drafter, they acknowledge that this
rule of contract construction is a tie-breaking interpretive rule that applies only when the language
is ambiguous and relevant extrinsic evidence cannot resolve the issue. See Wilkie v. Auto-Owners
Ins. Co., 664 N.W.2d 776, 782 (Mich. 2003); Klapp v. United Ins. Group Agency, Inc., 663 N.W.2d
447, 455 (Mich. 2003).

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Schuster conceded that his interpretation was based on his understanding, but not the language of

Paragraph 37, which is not necessarily consistent with Schuster’s recollection (Schuster Dep., Dkt

42, Ex. B at 41-43). And the mere fact that the parties’ final negotiations for the five-year

termination right in the Lease did not include prorated payment amounts for termination in the sixth

through tenth years, in and of itself, is of little import since the record indicates that Eagle Three

advertised a ten-year lease, but Konica Minolta was specifically focused on obligating itself to no

more than a five-year lease. In any event, “extrinsic evidence is not the best way to determine what

the parties intended. Rather, the language of the parties’ contract is the best way to determine what

the parties intended.” Klapp v. United Ins. Group Agency, Inc., 663 N.W.2d 447, 457 (Mich. 2003).

Accordingly, the Court rejects Eagle Three’s argument that Paragraph 37 gave Konica

Minolta only a one-time right to early termination, to be exercised immediately after the 60th month

of the Lease, and required Konica Minolta to give written notice of its intent to exercise that right

before June 16, 2011. Here, the language is straightforward and permits termination of the Lease

after five years, i.e., after December 14, 2011.

B. Fifth Third Bank Documents

Eagle Three argues that Konica Minolta agreed not to exercise its Paragraph 37 early

termination right in two documents signed with Fifth Third Bank after execution of the Lease

Agreement: (1) the Tenant’s Estoppel Certificate; and (2) the SNDA. Konica Minolta contends that

these documents did not modify or restrict its termination right in the Lease Agreement. The Court

concludes that the Fifth Third Bank documents do not alter the terms of Paragraph 37, and more

specifically, Konica Minolta’s right to terminate the lease after five years.

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Eagle Three argues that Paragraph 3 of the Estoppel Agreement defines the term of the Lease

to be ten years, and the SNDA notes that the provisions of the Lease “as modified by this

Agreement” are incorporated by reference (see SNDA ¶ 6), which together, in effect, trump Konica

Minolta’s termination rights under the Lease Agreement. That is, although Konica Minolta’s rights

under Lease did not change per se, Konica Minolta was “subordinating and foreswearing certain

rights to induce [Eagle Three’s financing from Fifth Third]” (Eagle Three’s Resp., Dkt 41 at 13).

Thus, Paragraph 9 of the SNDA was included precisely because Konica Minolta possessed early

termination rights under the lease (id. at 15).

Eagle Three’s argument is not supported by the documents themselves or the record

otherwise. First, Paragraph 3 of the Estoppel Agreement, defining the term of the Lease to be ten

years, does not add weight to Eagle Three’s contentions. That paragraph provides:

The expiration date of the current term of the Lease (be it the original lease
term or a renewal term) is 12/14/2016. Following said expiration date, Tenant has
available to it under the Lease two renewal terms of five years each.

(Estoppel Ag., Compl. Ex. C, Dkt 1-1 at 31) This language is merely consistent with the Lease

Agreement, the term of which was stated as ten years,6 and which also provided Konica Minolta the

option to renew the lease for two periods of five years (Lease ¶ 36). It cannot be read to supersede

Konica Minolta’s express termination rights under the Lease Agreement. Furthermore, the Estoppel

Agreement expressly states that “[t]he Lease has not been modified, altered, amended or

supplemented ….” (Estoppel Ag. ¶ 4).

6“This Lease shall be for a term commencing on the Completion Date, and terminating 120

months thereafter (the ‘Expiration Date’) except as referenced in paragraph 37” (Lease ¶ 3).

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Second, Eagle Three’s reliance on Paragraph 9 of the SNDA is of no avail. That provision

is also consistent with the terms of the Lease Agreement and does not provide that Konica Minolta

is foregoing any rights under the Lease:

9.

TENANT’S REMEDIES UNDER LEASE/NOTICE TO
LENDER. Tenant agrees that is obligated to pay the rent and other amounts
specified under the Lease and will not terminate the Lease prior to expiration of its
term, or any extensions or renewals thereof, except upon occurrence of a default
under the terms of the Lease by the “landlord” thereunder (“Landlord”) and failure
by Landlord or Lender to cure any such default within thirty (30) days after notice
of such default is delivered by Tenant to Landlord and Lender (provided that in the
event any such default cannot, with due diligence, be cured within such 30-day
period, then Landlord and Lender shall have an additional period to cure such default
as is reasonable under the circumstances, but only so long as Landlord or Lender
diligently pursues such cure).

(Compl., Ex. D, Dkt 1-1 at 54)

Nothing in Paragraph 9 states, or can be reasonably read, to contradict the express terms of

Paragraph 37 of the parties’ Lease Agreement that provides Konica Minolta the right to terminate

the lease after five years upon payment of the amount due for the unamortized tenant improvements,

up to $165,745.45. Eagle Three’s arguments to the contrary are unpersuasive.

IV. Conclusion

For the foregoing reasons, the Court determines that pursuant to Paragraph 37 of the Lease

Agreement, Konica Minolta possessed the right to terminate the Lease Agreement at any point after

the expiration of the first five years of the Lease Term, with proper notice, and that right was not

modified or restricted by subsequent documents executed by the parties, including the Tenant’s

Estoppel Certificate and SNDA. Accordingly, Konica Minolta’s Motion for Partial Summary

Judgment (Dkt 40) is granted.

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An Order will be entered consistent with this Opinion.

Dated: July ___, 2013

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/s/ Janet T. Neff

JANET T. NEFF
United States District Judge

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