Breach of Contract – Commercial Lease

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WI Court of Appeals – District I

Case Name: RJR ML LLC v. Keyhan Sheikholeslami, et al.

Case No.: 2017AP2238

Officials: BRENNAN, J.

Focus: Breach of Contract – Commercial Lease

This appeal concerns the eviction of Keyhan Sheikholeslami, d/b/a Ogden Cleaners (Tenant) from a commercial property owned by RJR ML LLC (Landlord). The complaint alleged that the Tenant breached a commercial lease “by causing or permitting the release or spill of hazardous substances … and by failing to timely remediate such releases.” The hazardous substance at issue is perchloroethylene (PERC or PCE), a solvent commonly used in dry cleaning.

At trial, the Landlord’s expert testified about a report he had prepared about the property. In June and July 2017, while the Tenant occupied the property, he had conducted inspections, taken samples, and photographed sludge material that, when tested, showed the presence of PERC. The trial court found that the PERC-contaminated sludge that the inspection revealed was “[e]ither new spills that were not cleaned up” or “some combination … [o]f existing problems [from prior tenant] that weren’t remedied as they should have been … and current spills that were not immediately cleaned” as the lease required (emphasis added). Based on that finding, the trial court concluded that there was “a basis for the breach of the lease and for the eviction.”

The Tenant does not argue that the trial court’s findings of fact are clearly erroneous but argues that no breach occurred. First, he argues that under the lease, merely “detectable” levels found in sludge do not constitute a “spill or release” of a “hazardous substance” and that to constitute a breach of the lease, a spill or release “must have a component of damage, potential injury or liability.” He argues that the trial court’s determination that he breached the lease was based on its incorrect interpretation of the lease as meaning “that the Tenant breaches the lease by not removing residue even if the Tenant did not cause the purported spill or release[.]”

We conclude that the lease’s plain, unambiguous language: (1) defines “hazardous substance” in a way that includes PERC; (2) prohibits the Tenant from “caus[ing] or permit[ting] any Hazardous Substance to be spilled or released,” and the prohibition applies to any spill, not just high-volume spills; and (3) requires the Tenant to “promptly … take all investigatory and/or remedial action reasonably recommended … for the cleanup of any contamination … that was caused or materially contributed to by” the Tenant. The lease permits the Tenant to use hazardous substances for dry cleaning, but the lease does not permit the Tenant to spill or release them. Applying this interpretation to the trial court’s findings of fact—that the contaminated sludge observed by the inspection was the result of “new spills” by the Tenant or, in the alternative, the result of spills by both the Tenant and the prior tenant—we conclude that the Tenant breached the lease. We therefore affirm.

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.