940 F.2d 1535
McCLAIN AIRLINES, INC., a Delaware Corporation, Plaintiff-Appellant,
REPUBLIC AIRLINES, INC., a Wisconsin corporation, Northwest
Airlines, Inc., a Minnesota corporation,
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted May 14, 1991.
Decided July 31, 1991.
Before FARRIS and TROTT, Circuit Judges, and DUMBAULD,* District Judge.
McClain Airlines (McClain) appeals the district court's order granting summary judgment in favor of Republic Airlines (Republic) in a contract action against Republic for the breach of McClain's right of first refusal for the lease of an airplane hangar. McClain contends that genuine issues of material fact exist precluding a grant of summary judgment.
Because of the lengthy period of negotiations leading to the impasse that spawned this case, we lay out the facts of this matter as we have been able to extract them from the record. They are as follows:
Republic Airlines (Republic) leased an aircraft hangar from the City of Phoenix, Arizona under a lease agreement which ran from 1965 through the year 2004. Under the lease, Republic could not sublet, assign, sell or transfer all or part of its interest without the consent of the City of Phoenix. The lease also provided that Republic could not assign its interest without providing the City of Phoenix with evidence that the prospective assignee had the financial ability to comply with the terms of the lease.
McClain Airlines (McClain) was interested in obtaining the aircraft hangar to maintain its own aircraft and to conduct an aircraft maintenance business. Accordingly, on August 15, 1983, McClain entered into a sublease agreement with Republic for 22,000 square feet of office space, in return for which Republic granted McClain a right of first refusal for the sublease or assignment of Republic's interest in the aircraft hangar.1 McClain agreed to pay $8,704.80 per month rent for the office space from August 1, 1983 until May 31, 1987.
The right of first refusal provides as follows:
1.1 Sublease and Assignments. Should Republic wish to sublet or assign its interest or rights under the Lease to any entity or person before the end of the Lease's term, Republic agrees to do the following:
1.1.1 Republic agrees to negotiate with McClain for entry into an agreement of sublease or assignment, as the case may be, on terms and conditions mutually acceptable to both parties.
1.1.2 If after a reasonable time (not to exceed 45 days), the parties are unable to reach agreement on the terms and conditions of a sublease or assignment Republic may enter into a sublease or assignment with third parties; provided, however, that any such sublease or assignment cannot be on financial terms and conditions more favorable to the third party sublessee or assignee than were the terms of the last good faith offer made by Republic to McClain during prior negotiations, nor on more favorable terms relating to the release by the Hangar Lessor of Republic's obligations under the Lease as set forth in the last good faith offer made by Republic to McClain during prior negotiations.
1.1.3 Republic agrees to give McClain written notice of the financial terms and conditions of any proposed sublease or assignment with third parties before entering into such agreement.
1.1.4 If the parties agree on terms and conditions of sublease or assignment between Republic and McClain pursuant to 1.1.1, Republic agrees that it will request expeditiously from the Hangar Lessor prior written approval to such an assignment or sublease if such approval is required by the Lease. If such approval is not necessary or if such approval is required and given, Republic and McClain each agree to execute all documents necessary to assign or sublet, as the case may be, its right, title and interest in the Lease to McClain. It is understood and agreed that Republic may condition such sublease or assignment on the Hangar Lessor releasing Republic from all or a part of Republic's obligations under the Lease.
2. Termination of McClain's Rights. In the event McClain shall default in its obligations under the Sublease and such default shall not have been cured within the time period prescribed within which McClain may claim such default, the right of McClain under this Agreement shall automatically and without any notice by Republic to McClain terminate and cease and this Agreement shall then be null and void.
3. Governing Law. This Agreement shall be governed by the laws of the State of Arizona.
On March 5, 1984, McClain wrote to Republic proposing to assume the primary lease of the aircraft hangar from the City of Phoenix, provided the parties could agree to this arrangement and could obtain the approval of the city. On March 14, 1984, Republic responded that it would not assign the primary lease on the hangar but would be willing to sublease 48% of the hangar to McClain for a term of five years at an annual rent of about $1.7 million. A term sheet for the proposed sublease was included in the March 14th letter to McClain. On March 22, 1984, McClain accepted Republic's sublease proposal but raised several concerns over the terms of the sublease. On March 28, 1984, Republic wrote to McClain addressing several of its concerns and requesting McClain's financial statements and credit information to show that McClain was financially able to enter into the sublease agreement. By letter dated April 5, 1984, McClain responded that rather than discuss its financial situation with Republic, McClain would be willing to pay a two-month deposit for the sublease of the hangar and provide a surety bond for an additional three months rent. Following another exchange of correspondence, Republic wrote to McClain on May 3, 1984, requesting a financial statement and stating that the transaction could not be completed unless McClain met the financial security requirements. Republic also stated that if McClain did not provide the requested financial information within the next ten days, Republic would begin negotiations with other interested parties. McClain responded that its original financial proposal appeared adequate and that it was not prepared to meet Republic's financial requirements. By May 16, 1984, the parties had not agreed on financial terms and Republic wrote to McClain stating that because more than 45 days had elapsed, McClain's right of first refusal had expired and that Republic intended to negotiate with others regarding sublease or the hangar.
Negotiations between McClain and Republic over the hangar began again in September 1984, but the parties were unable to agree on financial terms. No sublease agreement was signed. On December 19, 1984, Republic informed McClain by letter that it was preparing to enter into an agreement with Standard Aero, Inc. concerning an assignment of the hangar lease. Under the terms of this agreement Republic would assign its entire leasehold interest in the hangar to Standard Aero in exchange for which Standard Aero would purchase $2.65 million worth of personal property from Republic and would pay a $500,000 deposit, refundable if Republic either failed to perform or failed to obtain approval from the City of Phoenix. Republic offered to assign the hangar lease to McClain on the same terms and conditions offered to Standard Aero, if McClain made its decision within 48 hours and paid Republic a non-refundable deposit of $50,000. By letter dated December 20, 1984, McClain requested information on the allocation of the $2.65 million between the assignment of the lease and the personal property, and requested an extension of the December 21, 1984 deadline in the December 19 letter to respond to the offer. On December 27, 1984, Republic again offered McClain the assignment of the hangar lease on the terms offered to Standard Aero, but failed to provide information on the allocation of the $2.65 million as requested by McClain. McClain did not accept Republic's offer, claiming that the purchase of the $2.65 million worth of personal property was not part of the original right of first refusal agreement. At no time in the negotiations did McClain produce evidence that it had the financial ability to comply with the terms of the lease.
By December 1984, McClain had paid over $100,000 in rent for the sublease of office space from Republic to maintain McClain's right of first refusal. Rent was due on December 15. Pursuant to the sublease agreement, McClain had until December 20, 1984 to pay the December rent. McClain, however, did not pay either the December rent for the office space McClain was subleasing from Republic, or past taxes that were also due. On February 7, 1985, Republic wrote to McClain declaring the office sublease forfeited and the right of first refusal agreement terminated. Republic also informed McClain that Standard Aero had purchased Republic's personal property for $2.65 million and had assumed Republic's obligations under the hangar lease with the City of Phoenix for nominal consideration.
McClain sued Republic in Arizona state court for specific performance of the right of first refusal, requesting damages, fees, interest, costs and a declaratory judgment that the contract between Republic and Standard Aero is invalid as a matter of law. Republic removed the case to federal court. Republic filed a motion for summary judgment, and McClain filed a cross-motion for partial summary judgment. On January 8, 1990, the district court granted Republic's motion for summary judgment and denied McClain's cross-motion for summary judgment. McClain timely appeals.
The critical issue on appeal boils down to whether there exists a genuine issue of material fact regarding McClain's claim that Republic anticipatorily repudiated the right of first refusal in December, 1984. If not, then the right of first refusal expired pursuant to Section 9 of the Sublease as of December 21, 1984 by virtue of McClain's default with respect to its obligation to pay rent and accrued property taxes due and owing as of December 15, 1984, with a five-day grace period extending through December 20, 1984.
After reviewing the record, we conclude that no anticipatory repudiation by Republic of the right of first refusal occurred prior to the default by McClain on December 21, 1984. First, prior negotiations between McClain and Republic--which had commenced during March, 1984--failed as of May 25, 1984. It is apparent that this failure stemmed in turn from McClain's inexplicable failure to provide appropriate and crucial financial information regarding its ability to assume the obligations under the lease. This ability was critical to the contemplated arrangement. Accordingly, and by the terms of their agreement, Republic was free to look elsewhere with respect to a lease agreement with another company. Thus, Republic's subsequent activities in this respect with America West and Standard Aero cannot per se provide a basis on which to find anticipatory repudiation. Then, on December 19, 1984, four days after McClain failed to pay rent on the 15th and with the grace period ticking towards expiration, Republic advised McClain in a letter of its tentative agreement with Standard Aero. In this letter, Republic offered McClain an opportunity to meet Standard Aero's offer. Rather than pay rent and past taxes, however, and stop the grace period's clock from extinguishing its right of first refusal, McClain responded with a letter on December 20, 1984, indicating a willingness to negotiate but asking for more time. Before receiving a response, McClain's right of first refusal, which it seeks to vindicate, expired. By the terms of the right of first refusal agreement, McClain's default "automatically and without any notice by Republic to McClain [caused the agreement] to terminate and cease." McClain's vain protestations in its reply brief that two days to respond "was not reasonable" is, under these circumstances, unavailing. This is especially true in light of its steadfast refusal, or inability as the case may be, to demonstrate that it had the financial ability necessary to convince the City of Phoenix to accept it as a lessee, a sine qua non of any viable agreement. To preserve the contractual right it seeks to enforce, McClain had to live up to its side of the bargain with respect to taxes and rent, but it did not. Thus, the potential issue of whether the financial terms and conditions offered to Standard Aero were more favorable than those tendered to McClain, etc. was cut off before it could be sorted out.
The district court did not err in granting summary judgment against McClain and in favor of Republic.
The Honorable Edward Dumbauld, Senior U.S. District Judge, Western District of Pennsylvania, sitting by designation
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.Rule 36-3
McClain contends that this office space was 20,000 square feet in excess of what it needed for its own office operation, and that it entered the sublease solely to acquire the right of first refusal for the hangar