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Lindner v. Meadow Gold Dairies, Inc. - 515 F. Supp. 2d 1154 (D. Haw. 2007)

Rule:

To justify a discharge, a lessee must show that the frustration of purpose is severe. Inconvenience, unprofitability, and unexpected income reductions or cost increases will usually not suffice.

Facts:

Meadow Gold Diaries, Inc. (Meadow Gold) leased the land owned by Jeffrey Lindner in order to operate a dairy farm. After some time, Meadow Gold assigned its interests and obligation under the lease to Southern Food Group, L.P. (SFG). Notwithstanding the assignment, Meadow Gold remained responsible for its obligations under the lease. However, it terminated the lease 13 years early after a new neighbor indicated that he intended to file a citizen lawsuit against the lessee on the grounds that the operation of the dairy farm violated the Clean Water Act, 33 U.S.C.S. § 1251 et seq. Lindner filed a claim for liquidated damages, arguing that the plain language of the lease entitled him to a lump sum liquidated damages cash payment. On the other hand, SFG argued that performance under the lease was frustrated; therefore, it was relieved of any contractual obligation to pay liquidated damages.

Issue:

Should payment of liquidated damages be excused because of the frustration of the lease’s purpose?

Answer:

No.

Conclusion:

The Court held that increased costs associated with compliance with environmental laws did not constitute substantial or severe frustration of the purpose of the lease. The Court further noted that the event causing the frustration was foreseeable to the parties at the time they entered the lease because the obligation to comply with environmental standards was a stated and known obligation. Hence, Lindner was entitled to damages.

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