SEARS ROEBUCK AND CO v. HOLYOKE MALL COMPANY PYRAMID MANAGEMENT GROUP INC (2010)

MEMORANDUM AND ORDER ON THE PARTIES' MOTIONS FOR SUMMARY JUDGMENT

The parties dispute the calculation of payments in respect of property taxes due from the plaintiff, Sears, Roebuck and Company (Sears) to the defendants, Holyoke Mall Company, L.P. and Pyramid Management Group, Inc. (collectively, Pyramid) under a commercial lease.   Pyramid moves for summary judgment on all counts of Sears' complaint;  Sears moves for summary judgment on Count V (for declaratory judgment) of its complaint.   After hearing, and review of the parties' submissions (including memoranda totaling 192 pages), the Court is persuaded that genuine issues of material fact exist as to the respective grounds upon which the parties move, reviewed briefly below.

BACKGROUND

In January 1979 Sears, a national merchandise retailer, entered into a commercial shopping-center lease with Pyramid (lease) whereby Sears leased space in the Holyoke Mall (mall) in Holyoke, Massachusetts.

During the term of the lease, Pyramid billed Sears for its pro rata share of the property taxes Pyramid paid to the city of Holyoke and the town of West Springfield.   Sears' share was calculated according to two different formulae, one for land taxes and one for “improvements” taxes, both governed by Article 23.3 of the lease (“Valuation of Leased Premises for Tax Purposes”) which reads, in pertinent part, as follows:

(1) Property Taxes for the land of the Leased Premises shall be the amount

resulting from multiplying the amount of the Property Taxes for all land within

the Shopping Center Site by a fraction, the numerator of which shall be the land

area of the Leased Premises and the denominator of which shall be the land area

of the Shopping Center Site;

(2) Property Taxes for the Improvements upon the Leased Premises shall be the

amount resulting from multiplying the Property Taxes for all improvements

within the Shopping Center Site by a fraction, the numerator of which shall

be the gross square footage of the buildings upon the Leased Premises and

the denominator of which shall be the gross square footage of the buildings

existent or under construction within the Shopping Center Site. This total

area shall (including the gross square footage of any basements, the

Enclosed Mall and any other buildings or structures forming the Common

Area) be reduced however by the product of gross buildings area(s)

within the Shopping Center that are not completely constructed, and, the

complement of the percentage(s) of completion as determined in 23.3(A)[.]

Jt.App. I, Ex. A, Article 23.3(C)(1) and (2).

A fractional share based on gross square footage of buildings is, in real estate parlance, referred to as a gross building area, or GBA, fraction.   Sears' improvement taxes were thus calculated under Art. 23.3(C) using a fraction the numerator of which was the GBA of the Sears premises and the denominator of which was the GBA of the entire mall.   There is no dispute that, from 1979 until 1995, Pyramid billed and Sears paid for Sears' allocable share of taxes using GBA.

“Floor Area” is defined in the lease as “the area, whether or not leased or leasable, bounded by the exterior faces of the exterior walls or the center line of any perimeter party wall of a building ․ excluding ․ any area that is Common Area. No portion of Common Area ․ or any multi-level parking facility erected thereon shall be included in Floor Area.” Id., Art. 30(T).  In contrast to GBA, gross leasable area (GLA) typically excludes such spaces as common areas that are not leasable.   The parties agree that GLA is “similar” to floor area (both exclude common areas);  the Court concludes that, with regard to the Sears' premises, they are functional equivalents.   Nor can there be any dispute that the terms “GBA of the Leased Premises” and “Floor Area of the Leased Premises,” as applied to Sears, are identical.   See Jt. SOF (Pl.'s Motion), para. 52.

In connection with an expansion of the mall in 1995, which included a concurrent expansion of the Sears store and the construction of a new Sears Auto Center, the parties executed a Second Lease Modification Agreement dated February 21, 1995 (lease modification).   Paragraph 8 of the lease modification is at the heart of the parties' dispute, and reads in its entirety as follows:

Upon completion of Landlord's Work on the Leased Premises consisting

of the new 18,240 square foot Auxiliary Building and the later completion of the

revised Main Building of 163,933 square feet, Landlord shall certify to

tenant the square footage of Floor Area contained within the Leased Premises,

and Tenant shall have the right to verify the accuracy thereof, and thereafter

the Basic Rent payable pursuant to Subparagraph 21.2, the Additional Rent

payable pursuant to Subparagraph 21.3, the Mall Maintenance Payments

payable pursuant to Subparagraph 22.1, the Exterior Common Area

Maintenance Payments payable pursuant to Subparagraph 22.2 and the

Taxes payable pursuant to Article 23 as well as any other payment required

of Tenant under the Lease based upon the square footage of Floor Area

of the Leased Premises shall be adjusted to reflect the new square footage

of Floor Area of Leased Premises as of such date and the Landlord and

Tenant agree to execute and deliver a supplemental agreement substantially

in the form attached to the Lease to memorialize the revised Rent and

additional payments thereafter due under the Lease, as amended.

Jt.App. I, Ex. E.

It is undisputed that thereafter, at least quarterly from the 1995-1996 fiscal year until 2007, Pyramid calculated Sears' pro rata share of taxes using the GLA of the entire mall, rather than the GBA, as the denominator;  the effect of a smaller denominator was to increase Sears' percentage share of property taxes.   Sears contends that a May 2007 expense audit revealed that the calculations were made using an incorrect formula, and so notified Pyramid by letter dated May 11, 2007.   Defts.'  9A Packet II, Ex. 66.   By letter dated September 27, 2007, Pyramid replied that it was using the correct method to calculate Sears' pro rata share, and refused to issue Sears any credit for alleged over billing.   Jt.App. I, Ex. Q. This action followed.

Sears argues that Pyramid incorrectly and impermissibly reads paragraph 8 of the lease modification to permit the substitution of the GLA not only as the numerator but also as the denominator of the fraction used to calculate Sears' share of taxes under Art. 23.3(C).  Sears seeks, in Count V of its complaint, a declaratory judgment that Art. 23.3(C), as in effect before the lease modification, governs the manner in which its share of property taxes is to be computed.¹

Pyramid argues that the plain language of the lease modification does not support Sears' interpretation, and that Sears' repeated, knowing and voluntary payment of its share of the taxes constitutes acquiescence to Pyramid's interpretation.   Pyramid also asserts that Sears fails to establish that its interpretation is the only reasonable one, and that summary judgment is thus inappropriate.   Finally, Pyramid contends that, should the Court conclude that the lease modification does not allow the substitution of GLA for GBA in the denominator, it should also conclude that the parking garage is not a “building” or “structure” as defined in the lease, is therefore not included in GBA, and so should not be included in the denominator.

As to its own motion for summary judgment, Pyramid reiterates the above arguments, and asserts that Sears' claims are barred by the statute of limitations and by the voluntary payment doctrine.

DISCUSSION

I.  Paragraph 8 of the Lease Modification

As noted above, paragraph 8 provides that, upon Pyramid's completion of the expansion of Sears' leased premises, “․ the Taxes payable pursuant to Article 23 as well as any other payment required of Tenant under the Lease based upon the square footage of Floor Area of the Leased Premises shall be adjusted to reflect the new square footage of Floor Area of Leased Premises as of such [completion] date ․” The quoted language may be unambiguously interpreted to mean that, following completion of the Sears expansion, the newly increased “Floor Area of Leased Premises” was to be used as the numerator in the fraction otherwise specified by Art. 23.3(C) of the lease.   The issue here is whether the quoted language unambiguously specifies whether the denominator is to be either the GBA or the GLA of the mall.

Two points from the above are notable.   The first is that, as noted above, the GBA and the “Floor Area” of Sears' leased premises are identical, so the change in paragraph 8, so far as the numerator of Sear's fraction of property taxes is concerned, reflects only the actual increase in the “Floor Area” of the expanded Sears premises.   The second is that paragraph 8 does not mention the denominator, which under Art. 23.3(C) is the mall's GBA. From those points the question arises:  by specifying in paragraph 8 a defined term (“Floor Area” of the leased premises) that is functionally equivalent to GLA, were the parties intending to convert the Art. 23.3(C) fraction from GBA to GLA for both numerator and denominator, as arguably would be customary (see Pyramid's Opposition, at 14), or were they simply choosing one of two identical terms (GBA and Floor Area) for the numerator to ensure that the square footage of the Sears expansion would be included in the numerator, with no intention otherwise to modify Art. 23.3(C)?

While Sears' interpretation may be the more plausible, the Court cannot say, on the substantial record before it, that there is no genuine issue of material fact as to whether Pyramid's interpretation is also reasonable.

With regard to whether the parking garage is a “building” or “structure” under the lease for purposes of calculation of Sears' share of taxes, the Court concludes, primarily for the reasons stated at Pyramid's Opposition, at 18-20, that there remains as to that issue a genuine issue of material fact.

II. Statutes of Limitations

Pyramid contends that Sears knew or should have known by 1996 at the latest that Pyramid was billing Sears contrary to Sears' interpretation of the lease and the lease amendment.   Because Sears commenced this action in 2008, Pyramid argues that its claims are time-barred.

Sears argues that Pyramid failed to disclose that it had changed the calculation to a GLA-based fraction in 1995-1996, and misled Sears by various means, including (1) sending a “fraudulent” GLA worksheet in August 1995, Sears' Opposition at 13;  and (2) sending a false assurance in September 1996 that “in the past and continuing forward the methodology used in calculating your tax invoices has not changed and will remain the same pursuant to your Lease.”  Id. at 16.

Pyramid's arguments to the contrary notwithstanding, the Court is persuaded that Sears could reasonably have interpreted Pyramid's statement that “the methodology ․ has not changed” to mean that both the numerator and denominator had been and would continue to be derived using GBA or its equivalent, in accordance with Art. 23.3(C).  That Sears' reliance on that statement was arguably reasonable is bolstered by subsequent invoices which Sears alleges were false;  see Jt.App., Ex. JJ (representing that Sears' 1985 Tenant Allocable Share of .1621 was calculated using “Tenant's Square Footage” as the numerator and “Gross Building Area” as the denominator) and Ex. KK (employing the “1985 T.A.S.” in calculating estimated tax for 1986).   On this record, and in view of the relative strengths of Sears' and Pyramids' interpretations of paragraph 8 as those interpretations were or were not evidenced in the parties' course of conduct between 1995 and 2007, the Court concludes that genuine issues of material fact remain as to whether Sears' claims are barred by statutes of limitations.

III. Voluntary Payment

Pyramid argues that, under the voluntary payment doctrine, “ ‘money voluntarily paid under a claim of right, with full knowledge of the facts on the part of the one making the payment, cannot be recovered back unless there is a fraud or concealment or compulsion by the party enforcing the claim.’ ”   Pyramid's Supporting Memorandum, at 23 (quoting Carey v. Fitzpatrick, 301 Mass. 525, 527 (1938).   In view of the discussion above regarding statutes of limitations, the Court concludes that issues of fact remain as to whether the voluntary payment doctrine applies in the circumstances of this case.

ORDER

For the reasons stated above, the parties' respective motions for summary judgment are each DENIED.

FOOTNOTES

FN1. Sears' complaint also asserts claims for breach of contract (Count I);  money had and received (Count II);  conversion (Count III);  and violation of G.L. c. 93A (Count IV)..  FN1. Sears' complaint also asserts claims for breach of contract (Count I);  money had and received (Count II);  conversion (Count III);  and violation of G.L. c. 93A (Count IV).

Stephen E. Neel Justice of the Superior Court