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American Multi-Cinema, Inc. v. Intercontinental River East

August 10, 2010


The opinion of the court was delivered by: Blanche M. Manning United States District Court Judge

Judge Blanche Manning


On March 3 and 4, 2010, the court conducted a bench trial on the issue of the parties' intent in negotiating AMC's lease at 322 East Illinois Street (the "Building"). Defendant Intercontinental is the current landlord of the space being leased by AMC while defendant MCL was the prior landlord which negotiated the Lease. AMC filed a complaint seeking a declaratory judgment that, under the lease, it was not responsible for paying for heated and chilled water used to heat and cool its space outside of a monthly common expense charge, which is capped. Intercontinental has filed a counterclaim asking that the court declare that AMC is responsible for paying for all utility charges associated with its use of heated and chilled water based on the relevant lease provisions. For the reasons stated below, the court denies AMC's motion for a declaratory judgment and finds that Intercontinental is entitled to prevail on its counterclaim for breach of contract.

The following constitutes the court's Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52. See Fed. R. Civ. P. 52(a)(1). To the extent any of the Findings reflect legal conclusions, they shall be deemed Conclusions, and vice versa. For the reasons set forth below, the court enters judgment in favor of Intercontinental and against AMC.

A. Findings of Fact

In July 1999, AMC, a theatrical film exhibition company, entered into a lease agreement for a theater and related space in the commercial property development commonly known as River East Center in Chicago, Illinois (the "Project") with the then landlord River East, L.L.C. On July 7, 1999, the parties executed the document entitled Lease Between River East, L.L.C., as Landlord, and American Multi-Cinema, Inc., as Tenant, Covering Premises in River East Center I, Chicago, Illinois. ("Lease"). Lease negotiations occurred over an approximately one-year period, culminating in the July 7, 1999, Lease.

Both AMC and River East were represented by counsel during the negotiations. AMC was represented by Peter DiGiovanni and River East was represented by Richard Traub.*fn1 The parties to the Lease, through counsel, exchanged multiple drafts of the Lease before reaching a final agreement. Section 42 of the Lease states in part, ". . . In any interpretation, construction or determination of the meaning of any provision of this Lease, no presumption whatsoever shall arise from the fact that the Lease was prepared by or on behalf of any party hereto."

From March 2003 to April 2004, AMC's landlord at the River East Center was West Wacker Retail & Garage LLC ("West Wacker"). From April 2004 to January 8, 2006, AMC's landlord at the River East Center was an entity called MCL REC, LLC. From January 9, 2006, to the present, AMC's landlord at the River East Center has been Intercontinental. Intercontinental owns the retail portion of the River East Center, which includes not only the AMC theater, but also other stores, restaurants, and an exercise facility.

On January 9, 2006, Intercontinental entered into an Agreement with MCL for the Purchase and Sale of the River East Center as legally described in the Agreement of Purchase and Sale between Intercontinental and MCL ("Purchase Agreement"). As a part of the Purchase Agreement, MCL assigned its interest in the AMC Lease to Intercontinental pursuant to an assignment of leases in the Purchase Agreement. AMC was and continues to be a tenant at the property at River East Center pursuant to the AMC Lease.

The hot and chilled water provided to the retail tenants, including AMC, at the River East Center is produced by a central system (the "Central System") which is owned by Embassy Suites Hotel, which is, in turn, owned by Host Hotels & Resorts, Inc. (collectively the "Hotel"). The Lease provides that "'Central System' shall mean the plant (including rooftop cooling towers) which produces heated and chilled water for Tenant's heating, ventilating and air conditioning system." The Central System produces heated water and chilled water for use in the heating and cooling of AMC's Theatre and delivers that water to the AMC's Theater penthouse mechanical equipment room.

The Hotel charges Intercontinental for the hot and chilled water attributable to Intercontinental's retail tenants' space. When MCL was AMC's landlord, the Hotel charged MCL for hot and chilled water usage and MCL issued monthly invoices to AMC for its hot and chilled water charges. Since becoming landlord at the River East Center, Intercontinental continues to issue monthly invoices to AMC for its hot and chilled water charges. From January 2006, when Intercontinental became AMC's landlord, through June 2008, AMC has been invoiced for the amount of $1,043,412.30 for hot and chilled water usage charges. AMC has objected to these charges.

AMC and the defendants dispute whether the Lease requires AMC to pay a separate charge for its usage of hot and chilled water or whether the expense is included in and capped by the "Common Facilities Expense" provisions in the AMC Lease. The Lease provisions at issue are as follows.

Section 12(A) of the Lease reads:

Tenant shall pay all charges for gas, electricity, domestic water sewer service and other utilities used in Tenant's Facility during the term hereof (including heated and chilled water) all such utilities to be separately metered and (except for the heated and chilled water) to be obtained by Tenant from the applicable utility company; PROVIDED, HOWEVER, Landlord shall be solely responsible for the payment of any connection, tap, hookup or other fee(s) imposed by Governmental Authority or by any utility company to extend and/or connect utility service to Tenant's Facility.

AMC Ex. 1, Lease, p. 22 (emphasis added). As explained in more detail below, Intercontinental relies primarily on this section of the Lease in support of its interpretation that AMC is responsible for the costs of the hot and chilled water it uses.

On the other hand, AMC points to the Section 12(C) of the Lease as well as Section 3 of the Rent and Expense Rider in support of its position. Section 12(C) of the Lease provides:

Tenant shall tie into the Central System and Landlord shall operate the Central System in a first class and efficient manner so as to continually provide to Tenant's Facility heated and chilled water per the following specifications: supply and return piping (valved and capped) stubbed into the theatre penthouse with 8" chilled water piping providing 500 ton capacity, 750 gpm at 44 degrees F supply, and 60 degrees F return temperature and 4" heated water piping providing 4,300 MBH capacity, 215 gpm at 180 degrees F supply, and 140 degrees F return temperature. BTU metering shall be provided by Landlord. The costs of ...

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