Chi-Mil Corp. v. W. T. Grant Co.

70 F.R.D. 352, 1976 U.S. Dist. LEXIS 16782
CourtDistrict Court, E.D. Wisconsin
DecidedFebruary 9, 1976
DocketCiv. A. No. 74-C-507
StatusPublished
Cited by18 cases

This text of 70 F.R.D. 352 (Chi-Mil Corp. v. W. T. Grant Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Chi-Mil Corp. v. W. T. Grant Co., 70 F.R.D. 352, 1976 U.S. Dist. LEXIS 16782 (E.D. Wis. 1976).

Opinion

[354]*354MEMORANDUM DECISION AND ORDER

REYNOLDS, Chief Judge.

This is an action by a lessor against his lessee and his lessee’s assignee. Jurisdiction to hear the cause exists under the diversity provisions of 28 U.S.C. § 1332.

The lessor is Chi-Mil Corporation (“Chi-Mil”), the lessee is W. T. Grant Company (“Grant”), and the assignee is Forest City Enterprises, Inc. (“Forest City”). The lease in question covers certain commercial property located near the intersection of North 76th Street and West Acacia Street, Milwaukee, Wisconsin.

In order to understand the present posture of the proceedings, it will first be necessary to set forth at some length the facts of the case. On May 4, 1966, Chi-Mil and Grant entered into a lease and lease agreement covering the property in question, the lease agreement requiring Chi-Mil to construct a building thereon according to specifications submitted by Grant. Chi-Mil proceeded to obtain a construction loan from the State Farm Life Insurance Company (“State Farm”) in the amount of $1,350,-000 and, to secure the loan, granted State Farm a first mortgage on the property. The building was constructed and Grant took possession of the premises. The initial lease term on the premises extended to 1988, with Grant thereafter having options to renew.

Under the terms of the lease agreement, Grant was entitled to sublet or assign the lease, but such subletting or assignment was to be without effect as to Grant’s obligations under the lease. On February 14, 1974, Grant gave Chi-Mil written notice that it had assigned its interest under the lease agreement to Forest City, effective February 1, 1974. Grant vacated the premises sometime prior to the effective date of the assignment, and Forest City, without every occupying the premises, commenced paying the monthly rental due under the lease.

Forest City subsequently advised Chi-Mil that it intended to subdivide the building into several smaller stores and to thereafter sublease these smaller units to a nightclub owner, an automotive dealer, and several other sublessees who were not identified. On the basis of this information, Chi-Mil’s president sent the following letter to Grant on May 20, 1974, a copy of which was sent to Forest City:

“During a recent telephone conversation, we were advised by your assignee, Forest City Enterprises, Inc., through its real estate representative, Mr. Ronald Markowitz, that it is their intention to convert the existing W. T. Grant store at the above captioned location into a number of smaller stores.
“This conversion would affect a vital and substantial portion of the leased premises, the fundamental purpose of its erection, the uses contemplated and a change of such a nature as would affect the very real estate itself, being extraordinary in scope and effect, and an unusual financial expenditure. Section 6(a) of the lease dated May 4, 1966, by and between Chi-Mil Corp. and the W. T. Grant Company, permits the tenant only to make non-structural alterations, additions and improvements to the premises. The reconstruction of the building contemplated by Forest City Enterprises would be in direct violation of Section 6(a).
“It is the intention of the landlord to enforce Section 6(a) of the above described lease by whatever means available under the terms of the lease. The Landlord shall hold the Tenant, The W. T. Grant Company, primarily liable for the actions of its assignee which are now or may be in violation of the terms and conditions of the aforesaid lease.”

On May 23, 1974, Forest City’s chief corporate counsel responded in a letter to Chi-Mil’s president:

“Your copy of your letter of May 20, 1974, to W. T. Grant Company * * has been turned over to me for attention.
“It is my opinion that the projected action of Forest City Enterprises, Inc. [355]*355(Assignee) is not in violation of said Lease.
“Section 12 of said Lease permits the Tenant to not only use the premises for any lawful purpose but also to sublet all or any part of the premises or assign the Lease without any consent of the Landlord.
“Section 6(a) does not prevent the alteration, addition or improvement to said premises as long as the structural portions of the building are not affected. The Tenant can sublet and/or subdivide said premises without damage to the structural portions of the building.
“My client will take appropriate legal action against anyone causing loss of revenue or any other damage as a result of interference with their right to sublease or subdivide the above premises within the scope of the conditions of this Lease.”

On June 23, 1974, Chi-Mil’s president replied:

“We are in receipt of your letter of May 23, 1974, concerning the W. T. Grant store at Mill Road Shopping Center, Milwaukee, Wisconsin.
“Our letter of May 20, 1974, addressed to the W. T. Grant Company, a copy of which was sent to Forest City Enterprises, Inc., expresses our position concerning the contemplated conversion and remodeling program of the above captioned store.”

Forest City made no further response to Chi-Mil’s letter of June 23, 1974. Forest City continued to make rental payments on the premises until October 1974, when such payments ceased. Pursuant to Section 17(a) of the lease agreement, Chi-Mil gave written notice of the default in rent to both Grant and Forest City. After it became apparent that neither of the defendants intended to cure the rent default, Chi-Mil commenced the present proceedings against Grant and Forest City.

In its complaint, Chi-Mil requested that the Court direct the defendants to specifically perform those portions of the lease and lease agreement providing for the monthly payment of rent. Chi-Mil also requested an award of the damages and attorney’s fees occasioned by the defendants’ breach of the lease agreement.

Chi-Mil also moved for a temporary restraining order with respect to the payment of monthly rent. Chi-Mil alleged that the leased property was its only asset, and that rental payments therefrom constituted its only source of income. Chi-Mil further claimed that any delay in the receipt of rental income would lead to a default in payments due on the outstanding State Farm mortgage and a subsequent foreclosure by the mortgagee with an attendant loss of Chi-Mil’s equity in the property. A hearing was held on Chi-Mil’s motion, and the Court took the matter under advisement.

Thereafter, Grant answered Chi-Mil’s complaint, and at the same time asserted a cross-claim against Forest City for the latter’s violation of the assignment agreement. Forest City then answered the complaint and at the same time asserted a cross-claim against Grant, seeking a recission of the assignment agreement, and a counterclaim against Chi-Mil, alleging that Chi-Mil had itself violated the lease agreement.

Forest City’s allegation of a breach of the lease agreement by Chi-Mil prompted Grant to give written notice of default to Chi-Mil on December 10, 1974:

“As you know, we represent W. T. Grant Co. which entered a lease agreement with Chi-Mil Corp.

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Bluebook (online)
70 F.R.D. 352, 1976 U.S. Dist. LEXIS 16782, Counsel Stack Legal Research, https://law.counselstack.com/opinion/chi-mil-corp-v-w-t-grant-co-wied-1976.