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Vekic v. Popich

Supreme Court of Louisiana

October 18, 2017

NIKOLA P. VEKIC
v.
DRAGUTIN POPICH, MARY A. POPICH & HELEN HARRIS POPICH

         ON WRIT OF CERTIORARI TO THE COURT OF APPEAL, FOURTH CIRCUIT, PARISH OF ST. BERNARD

          GENOVESE, Justice

         This case concerns a contractual dispute regarding which party is entitled to the proceeds from the British Petroleum ("BP") Deepwater Horizon oil spill settlement for damages to certain oyster leases. As discussed in detail below, we disagree with the Court of Appeal and find that the trial court did not err in accepting evidence beyond the four corners of the contract at issue and did not manifestly err in its factual findings and ultimate interpretation that the agreement at issue entitled the plaintiff to the settlement proceeds for property damage to the leases at issue.

         FACTUAL AND PROCEDURAL HISTORY

         In 2009, plaintiff Nikola Vekic (Mr. Vekic) sought to buy three oyster leases which were jointly owned by Dragutin Popich (Mr. Popich) and his daughters Mary Popich and Helen Popich Harris (Mrs. Harris) (collectively "the Popich family"). Although the parties dispute the content of the discussions which took place between them regarding the sale of the three oyster leases, it is undisputed that the Popichs' lawyer, Roger Harris (Mr. Harris, husband of Mrs. Harris), transmitted a letter stating that Mr. Popich was "unwilling to do a credit sale." Instead, Mr. Harris drafted and submitted an agreement entitled "Sublease Agreement With Option to Purchase" ("agreement"), along with a proposed act of sale to Mr. Vekic, who reviewed the documents along with his attorney. Mr. Vekic executed the sublease agreement on April 14, 2009, without raising any issues regarding its contents.

         Under the agreement, Mr. Vekic agreed to sublease three oyster leases comprising approximately 451 acres of State-owned waterbottoms in Bay Boudreau, St. Bernard Parish, from the Popich family. Although Mr. Popich had been an oyster fisherman, he had not recently worked the leases at issue and was retiring from the oyster business. The amount of total "rent" due was $90, 000, with $30, 000 due upon execution of the agreement (April 14, 2009) and three installments of $20, 000 due annually thereafter on the anniversary of the agreement's execution. Mr. Vekic's option to purchase under the agreement was "exercisable at any time on or before April 30, 2012." To exercise the option, the agreement required Mr. Vekic to provide written notice to the Popich family, and "any rental payments paid pursuant to [the agreement would] be credited against the purchase price in dollar-for-dollar amount." The agreement stipulated the total purchase price was to be $90, 000, with no additional consideration required for the exercise of the option and with the leases being sold "as is."

         The terms of the artfully-crafted agreement differed significantly from a typical lease or sublease in that the Popich family transferred all of the rights and responsibilities of ownership to Mr. Vekic without the benefit of a formal transfer of title between the parties. Mr. Vekic was bound to pay the full $90, 000 in "rent" regardless of whether the leases were damaged or were even subject to a complete taking. Mr. Vekic could not under any condition terminate the lease and was responsible for fulfilling all of the legal requirements to maintain the leases, including paying the $2 per-acre lease fee to the Department of Wildlife and Fisheries.

         Importantly, as will be discussed in detail, Section 9 of the agreement, entitled "Proceeds for Damage to Oyster Lease(s), " provided that:

Claims for damages to or destruction of any portion of the subleased property shall be adjusted by Lessee; however, Lessor, at his sole option and discretion, shall have the right to join with Lessee in adjusting any such claims. Lessee shall have the right to proceeds derived from such claims in an amount sufficient to reimburse Lessee for Lessee's actual loss (i.e., the cost of bedding oysters in the damaged area); proceeds in excess of such reimbursed amount shall be received by Lessor as advance Rent.

(Emphasis added.)

         Upon execution of the agreement in April 2009, Mr. Vekic issued the Popich family a check for $30, 000, which indicated the payment was for "sublease agreement." The sublease was recorded with the Department of Wildlife and Fisheries, and Mr. Vekic was recorded as an agent entitled to work the leases, although the Popich family remained leaseholders of record.

         On April 10, 2010, Mr. Vekic paid an installment of $30, 000 to the Popich family, which was $10, 000 above the $20, 000 annual installment required by the agreement. This payment brought the total "rent" paid for the leases up to $60, 000 of the $90, 000 purchase price as of that date. Ten days later, the British Petroleum Deepwater Horizon well exploded ("the spill"). After the spill, the area where the leases at issue were located was closed off from fishing activities for a considerable amount of time. Mr. Vekic paid the Popich family the remaining $30, 000 he owed under the agreement in May, 2011. On June 19, 2011, Mr. Vekic exercised his option to purchase, and the parties executed the act of sale, which had been prepared in 2009 along with the original agreement, without any modifications ("Act of Sale").

         In the wake of the spill, a class action lawsuit was filed against BP. BP and the Plaintiffs' Steering Committee agreed upon a settlement in 2012 which, among other things, established a "compensation plan" for oyster leaseholders. Mr. Vekic filed a claim with the Deepwater Horizon Economic Claim Center ("DHECC") in June 2012 for his and his father's lease holdings, which comprised approximately 2000 acres. Mr. Vekic's claim to the DHECC also included the leases at issue. In January 2013, Mrs. Harris, an attorney, prepared and filed claims for the Popich family, informing the DHECC of the 2009 agreement with Mr. Vekic and post-spill Act of Sale.

         When Mr. Vekic received a proposed settlement offer for his lease holdings, the DHECC excluded the subleased property from Mr. Vekic's recovery. The Popich family, on the other hand, received a proposed settlement offer for the leases at the $2000 per acre amount provided by the compensation plan for the area which included the leases herein for a total of $901, 999.50.[1] Accepting this offer, the Popich family executed a release of any claims "arising out of, due to, or relating in any way to, directly or indirectly, the Deepwater Horizon Incident."

         Mr. Vekic filed the instant suit after the Popich family received the first round of settlement proceeds, seeking a declaratory judgment that he was entitled to the proceeds. Before the Popich family received their second round of payments under the settlement offer, the trial court ordered that the proceeds be placed in an IOLTA account, pending resolution of the dispute between the parties. After amending his petition twice, Mr. Vekic alternatively argued that the sublease was a disguised sale and security agreement. The trial court rendered its first judgment in Mr. Vekic's favor in January 2016. The Popich family filed a motion for new trial because the judgment was not dispositive of all issues, which motion was granted. The trial court rendered a second judgment in March 2016. The second judgment awarded Mr. Vekic the settlement proceeds less ten percent attorney's fees on past BP settlement proceeds and costs pursuant to the contingency fee agreement the Popich family had executed with Mrs. Harris. All future payments of BP settlement proceeds were awarded to Mr. Vekic.

         The Popich family appealed. In its opinion, the Fourth Circuit reversed the trial court, finding that the contract on its face clearly and expressly constituted a sublease and finding that Section 9 "d[id] not address whether Mr. Vekic or the Popich family would get damage proceeds exceeding bedding reimbursement and advance rent." Vekic v. Popich, 16-508, p.12 (La.App. 4. Cir. 3/29/17), 215 So.3d 483, 490. Citing Eagle Pipe & Supply, Inc. v. Amerada Hess Corp., 10-2267 p. 13 (La. 10/25/11), 79 So.3d 246, 256-57, the Court of Appeal stated that "Louisiana courts have consistently held that a purchaser is precluded from claiming damages to property that occurs prior to the purchaser's acquisition of the property." Vekic, 215 So.3d at 490. Finding Mr. Vekic did not obtain an express assignment of claims for property damage prior to the 2011 Act of Sale, the Court of Appeal thus concluded that "he is not entitled to the proceeds under the sublease with option to purchase or the law." Id. at 491. We disagree.

         DISCUSSION

         Although, as the Court of Appeal correctly noted, a purchaser is precluded from claiming property damages which occurred prior to the purchaser's acquisition of the property as set forth in Eagle Pipe, the facts in this case are readily distinguishable from this Court's ruling in Eagle Pipe. Rather, as described above, the original agreement confected by the parties specifically contemplated and included Section 9, entitled "Proceeds for Damage to Oyster Lease(s)." Section 9 specifically states, "Claims for damage to or destruction of any portion of the subleased property shall be adjusted by Lessee…." (Emphasis added.) The BP compensation plan for oyster leaseholders was specifically designed to resolve property damage claims for oyster leases. The use of the word "shall" indicates a mandatory requirement; thus, the Popich family expressly assigned their right to adjust all damage claims to Mr. Vekic, and Mrs. Harris's filing of the claim with the DHECC violated the contract between the parties.

         Mrs. Harris specifically testified at trial that, although reimbursement of "actual costs" and payment of "advance rent" were contemplated under Section 9, the Popich family did not contemplate that any possible property damages could surpass the amount of rent due. As the sublease did not specify which party would be entitled to damages in excess of the $90, 000 in "rent, " and given the parties' competing interpretations on this point, we find the trial court correctly determined that the agreement was ambiguous and looked to extrinsic evidence and testimony to determine the parties' intent.[2] "Interpretation of a contract is the determination of the common intent of the parties." La.Civ.Code. art. 2045.

         Although the agreement does not expressly provide that the excess damages would go to Mr. Vekic, it does not allow anyone other than Mr. Vekic to adjust claims for damages, nor does it provide that the Popich family may receive anything other than the $90, 000 specified in "rent" (along with fees or costs associated with late payment or default). Section 9 of the agreement reflects that the parties clearly contemplated that the agreement would cover all claims for property damages (as indicated by the requirement that the claims shall be adjusted by the lessee). Despite the unexpected large amount of damage proceeds in controversy, this subject matter is clearly within the purview of this agreement. Thus, it was the trial court's task to determine the intent of the parties and allocate the excess damages accordingly. The trial court's findings of facts in this respect are subject to a review for manifest error, and the Court of Appeal erred in conducting a de novo review and in giving no deference to the trial court.

         Without even going past the four corners of the agreement between the parties, the agreement itself contains support for the trial court's conclusion that it was the intent of the parties that the Popich family receive $90, 000 for the transfer of oyster leases and nothing more. "Each provision in a contract must be interpreted in light of the other provisions that each is given the meaning suggested by the contract as a whole." La.Civ.Code. art. 2050. In addition to Section 9, the agreement between the parties repeatedly shifts all responsibility and the risk of loss for the oyster leases to Mr. Vekic. Section 6.02 of the agreement, entitled "No Termination, " provides:[3]

Except as expressly provided herein, this Sublease shall not terminate, nor shall Lessee have any right to terminate this Sublease, nor shall Lessee be entitled to any abatement or reduction of Rent or Additional Rent hereunder, nor shall the obligations of Lessee under this Sublease be affected by reason of: (i) any damage to or destruction of all or any part of the subleased property from whatever cause; (ii) the taking of the subleased property or any portion thereof; (iii) the prohibition, limitation or restriction of Lessee's use of all or any part of the subleased property, or any interference with such use; (iv) any default on the part of the Lessor under this sublease, or under any other agreement to which Lessor and Lessee may be parties; or (v) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties hereto that the obligations of Lessee hereunder shall be separate and independent covenants and agreements, [sic] that the Rent, the Additional Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events and that the obligations of Lessee hereunder shall continue unaffected.

         In sum, this provision provides that Mr. Vekic must pay the "rent" specified regardless of whether the property is destroyed in whole or in part, whether it is taken in whole or in part, or whether the Popich family defaults in any manner.

         The lease also contemplates how proceeds as a result of expropriation or condemnation will be distributed, providing:

10.02 Complete Taking. If [a complete taking occurs] during the Term, Lessor shall retain the first $90, 000.00 of such amounts awarded or paid less the total amount of Rent previously paid by Lessee under this Sublease; any remaining amounts shall be paid to Lessee. …[4]

(Emphasis added.) Although the Popich family testified they had not contemplated that property damages could be more than $90, 000, they clearly did contemplate that a complete taking could occur for which payment would surpass $90, 000. In this case, the agreement provides that the Popich family is entitled to the first $90, 000 paid, minus the total amount of rent previously paid. Mr. Vekic is entitled to the remainder. Interpreting the provisions of this contract in light of one another, as contemplated by La.Civ.Code art. 2050, the agreement evinces the parties' intent that every precaution be taken to ensure that the Popich family received $90, 000 and nothing more, and that all liability, risk, and responsibility regarding the leases shifted to Mr. Vekic as of the time of the signing of the agreement, [5] even before the leases were formally transferred to Mr. Vekic.

         Furthermore, though this agreement was labeled a "sublease, " it had little or no indicia of a lease. It was essentially a transfer of an interest in and to the oyster leases with a guaranteed payment by Mr. Vekic of $90, 000 to the Popich family. As set forth in Section 18.02 of the agreement, captions and headings "shall not be considered in any manner in the construction or interpretation of the Lease." Therefore, the fact that this agreement was labeled a "sublease" is of no significance in determining which party is entitled to property damage.

         Looking at the extrinsic evidence, the parties' testimony demonstrates that the Popich family's sole concern with the agreement was insuring that they received $90, 000 and that Mr. Vekic assumed all risk and responsibility for the leases. Consider the following colloquy between Mr. Vekic's counsel and Mrs. Harris:

[Counsel for Mr. Vekic] Q. Okay. And is it true that the Popich family was agreeable to the payment of the 90, 000 over time, but wanted to ...

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