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Florida Rock Industries, Inc. v. Escambia Sand & Gravel Co., Inc.

United States District Court, S.D. Alabama, Southern Division

June 6, 2014

FLORIDA ROCK INDUSTRIES, INC., Plaintiff,
v.
ESCAMBIA SAND & GRAVEL COMPANY, INC., Defendant.

ORDER

WILLIAM H. STEELE, Chief District Judge.

This matter comes before the Court on Defendant Escambia's Rule 12(c) Motion for Judgment on the Pleadings (doc. 26) and Plaintiff's Cross Motion for Judgment on the Pleadings (doc. 30). Both Motions have been briefed and are now ripe.

I. Background.[1]

This declaratory judgment action arises from a dispute as to the enforceability and termination provisions of a lease for excavation of sand and gravel from certain tracts of land in Escambia County, Alabama. Plaintiff, Florida Rock Industries, Inc. ("Florida Rock"), entered into a Lease Agreement (the "Original Lease") with defendant, Escambia Sand & Gravel Company, Inc. ("Escambia Sand"), on or about September 14, 2005. Pursuant to the Original Lease, Escambia Sand leased certain lands to Florida Rock for excavation of commercially viable sand, gravel, clay, topsoil and overburden. In return, Florida Rock agreed to make royalty payments to Escambia Sand pursuant to a specified formula, with a minimum guaranteed monthly payment of $20, 000 (to be adjusted for inflation). On June 26, 2006, the parties entered into the First Amendment to Lease Agreement (the "Amendment"), doubling the minimum royalty payment to $40, 000 per month after Escambia Sand acquired two additional tracts of land for lease to Florida Rock for excavation of sand and gravel.[2]

Now, eight years after execution of the Amendment, Florida Rock and Escambia Sand disagree as to the enforceability of the Original Lease/Amendment (together, the "Lease") and the proper interpretation of certain Lease provisions. As the dispute ripened into litigation, each party lodged claims for declaratory judgment against the other. For its part, Florida Rock requests a declaration that "[t]he term of the Lease is too uncertain to be enforceable, so the Lease is void" (doc. 10, ¶ 15) or, alternatively, that "Florida Rock has a right to terminate the Lease on 120 days' notice beginning on the tenth anniversary of the Original Lease" ( id. at 7). Likewise, Escambia Sand has filed a Counterclaim for Declaratory Judgment, seeking declarations "that the term of the subject Lease is 40 years, from September 14, 2005, through September 13, 2045" and "that Florida Rock does not possess the legal right to terminate the subject Lease by merely giving 120-days' notice, or any term or type of mere notice." (Doc. 13, ¶¶ 17-18.)[3]

Although the parties' briefs are lengthy, this litigation hinges on a narrowly circumscribed set of contract provisions relating to the term of the Lease and the circumstances under which it may be terminated. Paragraph 3 of the Original Lease was labeled "Term" and specified, "The term of this Agreement shall be for ten (10) years (Term'), commencing on the date hereof... and ending on the tenth (10th) anniversary of the Commencement Date... unless sooner terminated or extended pursuant to this paragraph 3." (Doc. 30, Exh. A, ¶ 3.A.) Subparagraph B provided for early termination of the Original Lease as follows: "If, according to commonly recognized industry standards, the commercially mineable reserves of Construction Materials on the Leased Premises are exhausted prior to the Tenth Anniversary, TENANT may terminate this Agreement effective upon 120 days' written notice to LANDLORD." ( Id., ¶ 3.B.) Subparagraph C created a five-year extension period after the Tenth Anniversary, as follows:

"If at the Tenth Anniversary commercially mineable reserves remain on the Leased Premises, then the Term shall automatically be extended (without any notice requirement) until the earliest of (i) the date on which the commercially mineable reserves on the Leased Premises have been exhausted, (ii) 120 days after TENANT provides notice of termination of the Lease to LANDLORD, or (iii) the fifteenth anniversary of the Commencement Date."

( Id., ¶ 3.C. (emphasis added).) Subparagraph D provided for a comparable five-year extension of the Term at the Fifteenth Anniversary, until the earliest of the exhaustion of commercially mineable reserves, 120-days notice of termination by Florida Rock, or the Twentieth Anniversary. ( Id., ¶ 3.D.) By its express terms, the Original Lease was to be "construed and enforced in accordance with the laws of the State of Alabama." ( Id., ¶ 25.)

The parties executed the Amendment in June 2006 for the stated reasons (according to contractual recitals) that Escambia Sand was acquiring two additional parcels (known as the "Godwin Property" and the "Fuller Property") to add to the premises leased by Florida Rock. (Doc. 30, Exh. B, at 1.) The Amendment stated that, "[w]henever the terms of this First Amendment are inconsistent with the terms of the [Original] Lease, the terms of this First Amendment shall be deemed to supersede and amend the terms of the [Original] Lease." (Doc. 30, Exh. B, ¶ 1.) The centerpiece of the Amendment for purposes of this dispute is Paragraph 6, which was labeled "Extension of Term of Lease" and stated, in relevant part, as follows:

"Upon the Effective Date of the [Amendment], the Term of the Lease shall be the number of years required to mine the estimated tons of commercially mineable reserves of sand and gravel on all the lands subject to the Lease... at a mining rate of 1, 200, 000 tons per year.
"The Landlord and the Tenant agree that the lands covered by the original Lease... have estimated mineable reserves of 14.4 million tons; that the Godwin Property has estimated mineable reserves of 30.5 million tons, and that the Fuller Property has estimated mineable reserves of 2.6 million tons.1 Accordingly, the term of the Lease shall be 40 years from the original commencement date of September 14, 2005 (47.5 million tons divided by 1, 200, 000 tons = 40 years). Notwithstanding the foregoing, the Term of the Lease will terminate sooner if, according to commonly recognized industry standards, commercially mineable reserves of sand and gravel on the Leased Premises have been exhausted. Upon the occurrence of such event, the Tenant may terminate the Term of the Lease upon 120 days written notice to Landlord.
"The extension of the Term of the Lease shall be effective as of the Effective Date...."

(Doc. 30, Exh. B, ¶ 6 (emphasis added).)

As set forth in the above-quoted passage, Paragraph 6 of the Amendment contained a footnote relating to the Fuller Property's estimated mineable reserves. The text of that footnote reads, in its entirety, as follows:

"The estimated mineable reserves of the Fuller Property' are based on an assumption by Escambia Sand & Gravel that 40 acres of the 55 acres of the Fuller Property are mineable (the remainder to accommodate borders, etc.) and that the 40 acres will yield 65, 000 tons of mineable reserves per acre, for a total of 2.6 million tons of mineable reserves. This estimate is subject to verification by Florida Rock and to an adjustment of the estimated mineable reserves of the Fuller Property' mutually agreeable to Florida Rock and Escambia Sand & Gravel. "

( Id. (emphasis added).) The Amendment concluded with a provision stating that "[e]xcept as expressly modified and amended herein, all the terms and provisions of the Contract shall remain in full force and effect." ( Id., ¶ 10.)

The parties' dispute about the Lease is twofold. First, Florida Rock contends that the Lease as a whole is unenforceable under Alabama law because it lacks a certain, definite end date. For its part, Escambia Sand counters that the Lease provisions regarding term and end date are compliant with Alabama law. Second, Florida Rock argues that the "Extension of Term of Lease" provision found at Paragraph 6 of the Amendment did not modify, amend or supersede the portion of the Original Lease that gave Florida Rock the right of termination on 120 days' notice during the extension periods following the Tenth Anniversary. By contrast, Escambia Sand's position is that the Amendment superseded the Original Lease's clause allowing Florida Rock to unilaterally terminate the Lease, such that Florida Rock no longer has a right of termination without cause on 120 days' notice following the Tenth Anniversary. Such dueling arguments are the focus of the parties' cross-motions for judgment on the pleadings.

II. Analysis.

A. Legal Standard for Rule 12(c) ...


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