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Consumers United Ins. Co. v. Smith

July 14, 1994


Appeal from the Superior Court of the District of Columbia; (Hon. John H. Suda, Trial Judge)

Before Ferren, Steadman, and King, Associate Judges.

The opinion of the court was delivered by: Ferren

FERREN, Associate Judge: In this case a Delaware insurance company, doing business in the District of Columbia, stopped paying rent and sued its landlord for rescission of the lease and for damages, claiming the landlord had fraudulently induced it to lease space in a building with dangerous asbestos-containing materials. The landlord filed a counterclaim for nonpayment of rent and related charges. The jury found in all respects for the landlord, and the trial court entered judgment on a verdict against the insurance company for $2,500,000. In an effort to execute on its judgment and obtain a lien on a building that its judgment debtor, the insurance company, owned in the District, the landlord recorded its judgment with the District of Columbia Recorder of Deeds. (The landlord was unaware that, a few days earlier, the insurance company had transferred the building to its parent company.) The landlord also caused the court to issue a writ of garnishment of the insurance company's funds in a District of Columbia bank. Soon thereafter, the Delaware Insurance Commissioner seized the insurance company's assets pursuant to a Delaware court order that enjoined all persons (thereby including the District landlord) from asserting any claim against the insurance company's property. A few weeks later, ignoring the Delaware court's order, the landlord filed a motion in Superior Court for a judgment of recovery against the garnishee bank, seeking the insurance company's funds the landlord had garnisheed. The trial court granted the motion, and the insurance company appealed. Subsequently, the trial court held an evidentiary hearing on the validity of the insurance company's sale of its building (on which the landlord had a judgment lien) to the parent company. The court ruled that the transfer was a fraudulent conveyance and that, in any event, the landlord was entitled to pierce the so-called corporate veil to execute on the building. The insurance company noted another appeal.

Although the insurance company has raised numerous issues, this consolidated appeal presents essentially three questions requiring more than summary treatment: (1) whether, in light of the particular damages formula in the lease, the landlord presented sufficient evidence to support the $2,500,000 judgment on its counterclaim for damages for non-payment of rent; (2) whether the landlord or the Delaware Insurance Commissioner has priority in claiming the insurance company's bank accounts and building; and (3) if the landlord has priority, whether it must apply to the Delaware receivership court for permission to enforce the judgment liens.

As to the first issue, we conclude that the trial court did not err in denying the insurance company's motion for judgment notwithstanding the verdict, even though the landlord's expert testimony did not exactly track the damages formula in the lease itself.

As to the second issue, we hold -- consistent with Supreme Court authority on the Full Faith and Credit Clause -- that this court's decision in Herman v. Siney, 190 A.2d 650 (D.C. 1963), requires us to affirm the judgment granting the landlord's claim to the insurance company's building and bank accounts priority over the subsequently appointed Delaware receiver's claim, subject to remand for further proceedings to ascertain the amount of the insurance company's money the landlord's writ of garnishment reached in the bank before the Delaware court issued its seizure order cutting off the landlord's claim.

Finally, we conclude that the Full Faith and Credit Clause does not require the landlord to obtain authority from the Delaware receivership court in order to proceed further in enforcing its judgment liens in the District of Columbia. At most, the Full Faith and Credit Clause would require the landlord to seek permission for release of the collateral from a District of Columbia court, acting in the capacity of an ancillary receiver. That local receivership court, applying Huffines v. American Sec. & Trust Co., 63 App. D.C. 224, 71 F.2d 345 (1934), would have authority -- in the insurance company's interest -- to stay, but not prevent, enforcement of the liens. In this case, however, the insurance company has not argued on appeal, as a fallback, that the trial court should have stayed enforcement of the judgment liens under Huffines.

Accordingly, we affirm in all respects save for a remand to determine the amount of the insurance company's money in the bank the landlord is entitled to reach.


On October 10, 1983, appellant, Consumers United Insurance Company (CUIC), a Delaware corporation, signed a ten year lease -- from October 1, 1984 to September 30, 1994 -- for commercial office space in a building located at 2100 M Street, N.W. The building was owned by Embassy Associates, a partnership whose general partners are appellees Robert H. Smith and Robert P. Kogod, and was managed by appellee Charles E. Smith Management, Inc. (We refer to appellees, collectively, as "Smith.")

In October 1991, CUIC stopped paying its rent under the lease. As a result, in November 1991, Embassy Associates filed suit against CUIC in the Landlord & Tenant Branch (L&T No. 56768-91), seeking possession of the premises and rent owed under the lease. The following month, on December 4, 1991 -- before the Landlord & Tenant Branch had ruled on Smith's claim for possession and rent -- CUIC filed suit in the Civil Division (No. 91-CA15359), essentially seeking rescission of the lease, return of all rent payments, and damages allegedly caused by hazardous asbestos-containing building materials (ACBMs) in the building. CUIC's complaint alleged that Smith had fraudulently induced CUIC to enter into the lease by concealing the fact of the ACBMs. CUIC also alleged that the ACBMs had created a nuisance, that Smith had been negligent, even grossly negligent, in renovating the building, and that Smith had violated other terms of the lease, including the covenant of quiet enjoyment. CUIC also moved to consolidate its action in the Civil Division with Smith's action in the Landlord & Tenant Branch, pursuant to Super. Ct. Civ. R. 42 (a).

On December 10, 1991, the Landlord & Tenant Branch issued a protective order, requiring CUIC to pay future rent into the Court Registry. On December 23, 1991, Smith filed an answer to CUIC's complaint, as well as a counterclaim against CUIC seeking damages, attorney fees, and costs for alleged nonpayment of rent. Smith also opposed CUIC's motion to consolidate its action in the Landlord & Tenant Branch with CUIC's action in the Civil Division on the ground that consolidation would frustrate the goal of the Landlord & Tenant Branch: to provide swift, summary resolution of claims for possession.

On February 6, 1992, the trial court consolidated the parties' claims and granted summary judgment for possession in favor of Smith. Two months later, in April 1992, CUIC vacated the leased premises. The consolidated jury trial on CUIC's complaint and Smith's counterclaim began on September 24, 1992.

At trial, CUIC presented evidence that the 2100 M Street building contained ACBMs. CUIC also presented testimony that, because Smith was a major commercial landlord in the Washington, D.C. area, Smith knew or should have known, by the time Smith and CUIC entered into the lease in 1983, that the building had been constructed with ACBMs. In addition, a specialist in the fields of epidemiology and risk assessment testified on behalf of CUIC that, when entering into the lease with CUIC, Smith had acted contrary to the Environmental Protection Agency's asbestos controls standards for landlords.

CUIC showed that in 1986, Smith had hired NuChemCo, a consulting firm, to determine the quantity and condition of asbestos at 2100 M Street. According to this evidence, NuChemCo had found dangerous quantities of asbestos in various parts of the building. *fn1 CUIC also presented evidence that, in 1987, after CUIC had contracted with Smith to renovate portions of its space in the building, Smith had never mentioned asbestos during any of the Discussions about the renovation. Employees of CUIC testified that CUIC had remained in the building during the extensive renovation, and that a Smith employee had told them in 1987 that there was no asbestos in the building and, in any event, that the construction would not cause a health risk from disturbance of asbestos. CUIC employees further testified that large amounts of dust and debris had been released into the building during the construction and that no precautions had been taken to protect them from exposure to the debris.

CUIC's Chief Operating Officer testified that CUIC had paid rent to Smith totaling $11,999,923 since the lease term began in October 1984. She further testified that CUIC sought return of that entire sum because CUIC would not have entered into the lease if it had been told there was asbestos in the building.

CUIC argued to the jury at trial that Smith, in particular, had violated § 35.1 of the lease by not "making its best efforts to respond to correct or repair" the asbestos condition in the building after receiving notice from NuChemCo in 1986 that the asbestos was dangerous to CUIC employees. *fn2 With regard to CUIC's related negligence claim, CUIC asked the Judge for a negligence per se jury instruction based on its allegation that, during the 1987 renovation, Smith had violated Occupational Safety & Health Administration (OSHA) regulations prescribing asbestos standards. The trial court, however, declined to give the requested instruction, instructing the jury instead that a violation of OSHA regulations may be some evidence of negligence.

In support of its counterclaim at trial, Smith relied primarily on the testimony of two witnesses. The first, Sarah Hood, Smith's property manager for 2100 M Street, testified that she oversaw the general management of the building, including the building's finances. She testified that she had deposited CUIC's October 1991 rent check as usual but that the bank had returned it unpaid because of a stop payment order from CUIC. Hood further testified that, beginning with October 1991, CUIC remained in the building without paying rent or utility expenses. According to Hood, CUIC did not move out of the leased space until March 31, 1992, six months after it stopped paying rent and utility expenses.

Hood then testified that between March 31, 1992, when CUIC moved out of the building, and October 1992, the time of trial, Smith had been able to relet only a small part of the space which CUIC had vacated. One of CUIC's subtenants, Co'op America, had signed a new seven month lease, and two other short-term tenants had remained in part of CUIC's space. Hood then explained, with the help of a chart, her calculation of damages to which Smith was entitled under the lease for the one-year period from October 1991 through September 1992 -- from the date of CUIC's breach to the end of the month before trial.

Smith's second witness, James Creedon, its Vice President, testified that he was responsible for finding tenants to occupy the space in 2100 M Street after CUIC had vacated the building at the end of March 1992. Creedon testified that in its effort to re-let the space to new tenants, Smith had listed it with information services, sent mailings to brokers, given tours of the property, and offered incentives to brokers to bring in potential tenants. Creedon then explained his calculation of the damages CUIC owed Smith for the two-year period from October 1, 1992, through September 30, 1994 -- from the time of trial through the end of the agreed lease term.

On October 6, 1992, the jury returned a unanimous verdict in favor of Smith on all claims presented at trial. More specifically, the jury indicated on a court-supplied special verdict form that it had found in Smith's favor on CUIC's claims for breach of contract, negligence, gross negligence, fraudulent concealment, and fraudulent inducement. *fn3 The jury also found in Smith's favor on its counterclaim for breach of the lease and awarded Smith $2,500,000 in damages. CUIC moved for a judgment notwithstanding the verdict or, in the alternative, for a new trial; the court took the motion under advisement.

Following imposition of the judgment, CUIC filed an Emergency Motion for Stay of Execution of Judgment Pending Decision on Motion for Judgment Notwithstanding the Verdict. The court granted CUIC's emergency motion, staying execution of the judgment pending its Disposition of the motions for j.n.o.v. and a new trial, on the condition that CUIC post a supersedeas bond. On October 29, 1992 the court denied CUIC's motions for postjudgment relief; CUIC noted an appeal from the judgment and from denial of its judgment notwithstanding the verdict motion (No. 92-CV-1496).

The following day, counsel for both parties discussed a possible agreement under which Smith would withhold execution on its judgment pending settlement Discussions. At that time, CUIC's counsel did not inform Smith's counsel that CUIC was in the process of transferring all of its liquid and tangible assets out of the District of Columbia or that CUIC was considering transferring a building it owned in the District, located at 1714 Connecticut Avenue, N.W., to its parent holding company, Consumers United Group, Inc. (CUG). On November 2, 1992, CUIC representatives met with the Delaware Insurance Commissioner and with other representatives from the Delaware Department of Insurance to discuss the sale of CUIC's Connecticut Avenue building to CUG in exchange for a promissory note secured by the building and by stock in Consumers Computer Services, Inc. (CCSI), a wholly owned CUG subsidiary. The next day, November 3, CUIC transferred the building to CUG in exchange for a promissory note valued at $1,650,000; the note was secured by a deed of trust on the building and by all of the CCSI stock.

On November 4, 1992, Smith, unaware that CUIC had sold its Connecticut Avenue building to CUG, began efforts toward satisfying its judgment against CUIC by recording the judgment with the District of Columbia Recorder of Deeds. On November 5, Smith moved the court for release of the protective order funds that CUIC had deposited into the court registry in lieu of paying rent. The court granted Smith's motion on December 2, and CUIC noted an appeal (No. 93-CV-16). *fn4 Also on December 2, the court ruled that Smith was entitled to recover attorney's fees from CUIC attributable to Smith's efforts to repossess the leased premises and obtain damages. CUIC also noted an appeal from this ruling (No. 93-CV-280). *fn5

On November 13, 1992, Smith served interrogatories and a writ of attachment on Ben, Inc., a tenant in CUIC's building at 1714 Connecticut Avenue. Ben, Inc. answered the interrogatories and ultimately satisfied a condemnation judgment against it in the amount of $8,812.85. *fn6 Also on November 13, Smith served on CUIC's bank, First American, a set of interrogatories and a writ of attachment against all credits held in CUIC's name. Three days later, on November 16, First American answered that it was holding $319,423.62 for CUIC. For reasons that are unclear in the record, First American later amended its answer to show it was holding $516,577.24 for CUIC.

On November 17, 1992, responding to an ex parte request from the Delaware Insurance Commissioner, a Delaware Chancery Court issued a Seizure and Injunction Order, granting the Commissioner "possession and control of the property, assets, business and affairs of Consumers United," and "enjoining and restraining [all persons] from asserting any claim against the Commissioner or Consumer United's property." *fn7

On December 8, 1992, Smith sought CUIC's funds in the District of Columbia by moving for a judgment of recovery against First American Bank pursuant to Super. Ct. Civ. R. 69-I (e). *fn8 The Delaware Insurance Commissioner entered an appearance and opposed Smith's motion on the ground that Smith's November 13 attachment of CUIC's funds held by First American could not prevail against the later November 17 Delaware Chancery Court Seizure and Injunction Order. On January 5, 1993, the trial court ruled that Smith's earlier attachment had priority over the later Delaware order and granted Smith's motion for judgment of recovery; CUIC noted an appeal (No. 93-CV-61). *fn9

The following day, on January 6, 1993, the Delaware Insurance Commissioner filed in Superior Court a Motion Stating Claim to Attached Properties, to Vacate Writs of Attachment and to Rescind Condemnation Judgments. The Commissioner challenged, among other things, certain attachments that Smith had served after the November 17 Seizure and Injunction Order of the Delaware Chancery Court. The trial court denied the Commissioner's motion on January 28, 1993, and CUIC noted its appeal from the court's order (No. 93-CV-277). *fn10

On February 5, 1993, the trial court ordered an evidentiary hearing to adjudicate the validity of CUIC's sale of its Connecticut Avenue building to its parent holding company, CUG. Two months later, on April 9, Smith moved for summary judgment, arguing that it was entitled to execute on CUIC's Connecticut Avenue building to satisfy its judgment because (1) the purported transfer of the building to CUG was a voidable fraudulent conveyance in violation of D.C. Code § 28-3101, and (2) Smith, in the alternative, was entitled to "pierce the corporate veil" to execute on the building in CUG's hands. The court agreed with both of Smith's arguments and ruled, in a detailed order dated May 3, 1993, that Smith was entitled to void the transfer of the building to CUG and, in any event, was entitled to pierce the corporate veil to execute on the building in CUG's hands. CUIC noted an appeal (No. 93-CV-726).


CUIC contends the trial court erred in denying its motion for judgment notwithstanding the verdict because Smith failed to prove damages in the terms prescribed by the lease. *fn11 Specifically, CUIC points to the Recovery of Damages provision of the lease, § 12.4, and argues that Smith did not present evidence at the trial that properly addressed the two components of the damages calculation: fair market value of the lease and present value of the rent reserved under the lease. *fn12 CUIC asserts that in calculating damages, Smith failed (1) to present evidence of an objective appraisal of fair market value of the lease on the date of CUIC's breach and (2) to discount damages to their present value as of the date of CUIC's breach, both as required by § 12.4 of the lease.

A. Criteria for Judgment Notwithstanding the Verdict; Specific Question Presented; Jury Instructions; Special Verdict Form

By moving at trial for a directed verdict and for judgment notwithstanding the verdict, CUIC preserved for appeal its argument that Smith did not present evidence sufficient to sustain the jury's verdict. *fn13

While normally the jury is the trier of fact, a trial court may remove from jury consideration those cases in which the facts, viewed most favorably to the nonmoving party, permit but one reasonable Conclusion as to the proper judgment." District of Columbia v. Cassidy, 465 A.2d 395, 397 (D.C. 1983) (quoting Faniel v. Chesapeake & Potomac Tel. Co., 404 A.2d 147, 150 (D.C. 1979)). The court may apply this standard by entering a directed verdict or a judgment n.o.v. See id. Rich v. District of Columbia, 410 A.2d 528, 532 (D.C. 1979). In reviewing the denial of a judgment n.o.v., "'this court must view the evidence and all reasonable inferences in the light most favorable to the party who obtained the jury verdict' and must reverse 'only if no juror could reasonably reach a verdict for the opponent of the motion.'" Cassidy, 465 A.2d at 397 (quoting Marcel Hair Goods Corp. v. Nat'l Sav. & Trust Co., 410 A.2d 1, 5 (D.C. 1979)); Corley v. BP Oil Corp., 402 A.2d 1258, 1263 (D.C. 1979).

The specific question presented, therefore, viewing the evidence in the light most favorable to Smith, is whether Smith offered sufficient evidence at trial to support the jury's $2,500,000 verdict, given (1) the terms of the lease (which was in evidence), (2) Smith's two witnesses on damages, and (3) the trial court's very general jury instructions on Smith's counterclaim -- to which CUIC did not object. *fn14

The trial court instructed the jury as follows:

Now Smith's counterclaim. Smith claims that breached the lease and is seeking damages for that breach. Smith claims that the part of the lease that was breached was the rental payments part, that is stopped paying rent and Smith says this was a breach of the lease and they are entitled to damages.

The court later supplied a "special verdict form," to which CUIC did not object, see (supra) note 14, which asked two questions with respect to Smith's counterclaim: "Do you find that Consumers United breached its lease with Embassy Associates [ i.e., Smith]?" If so, "How much in damages do you award Embassy Associates [i.e., Smith]?"

These instructions and the special verdict form left the jury with wide discretion to calculate and award damages for non-payment of rent. While it is true that counsel, in preserving CUIC's sufficiency argument for appeal, claimed "there's no evidence that the damage computation testified to by the defense [and counter-plaintiff] bears any reasonable relationship to the lease requirements," (supra) note 13, counsel did not proffer, or ask the trial court to draft, jury instructions that referred to the "lease requirements," specifically the damages provision, § 12.4. See (supra) note 12. It is true that evidentiary sufficiency, analytically, is not dependent on or governed by jury instructions. On the other hand, if there is sufficient evidence of damages and the jury instructions are not precise, the jury's verdict is entitled to considerable deference in evaluating the limits of a permissible award simply because the jury has not been given much concrete guidance.

B. Anticipatory Breach of Lease at Common Law; Measure of Damages

At common law, when a lessee abandoned the premises and refused to pay any more rent -- sometimes called an "anticipatory breach" of the lease or a "breach by anticipatory repudiation" -- the lessor had available two basic courses of action: refuse to accept the surrender, let the property lie idle, and sue for the rent as it came due; or accept surrender of the premises, thereby terminating the lease, and immediately sue for damages. Sagamore Corp. v. Willcutt, 120 Conn. 315, 180 A. 464, 465 (Conn. 1935). *fn15 Under the latter approach, the lessor was entitled, as of the date of breach, to the most accurate possible calculation of damages attributable to a period wholly in the future, i.e., the balance of the lease term. An old federal district court decision aptly summarized the common law approach to calculating damages under the second alternative:

It is well settled that the proper measure of damages presently recoverable by a lessor under a lease for years, from the lessee therein, on an abandonment constituting a breach thereof by the lessee, is the present value of the difference between [1] the fair rental value, at the time of such breach, of the leased premises for the balance of the unexpired term and [2] the total agreed rent for such unexpired term.

Leo v. Pearce Stores Co., 57 F.2d 340, 341 (E.D. Mich. 1932) (emphasis added); see Garcia v. Llerena, 599 A.2d 1138, 1143 (D.C. 1991).

Because damages are payable as of the date of judgment in a lump sum, rather than as they accrue over the balance of the lease term, the Leo court recognized that the total of such future damages must be reduced or discounted to the "present value" of receiving that sum over time. Leo, 57 F.2d at 341. This means that both the balance of the agreed rent yet unpaid on the date of breach and the fair rental value of the lease on the date of breach -- which are to be compared in order to ascertain changes -- represent sums calculated for a future period but discounted to present value. See Vibrant Video, Inc. v. Dixie Pointe Assocs., 567 So. 2d 1003, 1004 (Fla. Dist. Ct. App. 1990); Taylor Publishing Co. v. Systems Mktg., Inc., 686 S.W.2d 213, 217 (Tex. Ct. App. 1984).

Because Smith filed its counterclaim for nonpayment of rent before expiration of the lease, Smith invoked the measure of damages summarized above from Leo, which is specified in § 12.4 of the lease. See (supra) note 12. More specifically, Smith relied on the particular measure of damages in § 12.4 reflecting "the difference between [1] the present value of the rent reserved under this lease on the date of breach, discounted at ten percent (10%) per annum, and [2] the fair market value of the Lease on the date of breach." (supra) note 12. *fn16 Put somewhat more simply, this means that Smith was entitled to the difference between the total amount CUIC promised to pay under the lease for the balance of the rental period after the breach (discounted at 10% per year), and the total amount Smith could reasonably expect to receive for that entire period upon reletting the premises after the breach (discounted to reflect present market value). If, for example, CUIC had defaulted on payment of a sum which, when properly discounted, totaled $10,000 for the balance of the term, and Smith could reasonably be expected to relet the premises from the date of the breach for no more than $8,000, representing present (i.e., discounted) fair market value of the lease for that same period, Smith's discounted damages would be $2,000. If, however, Smith could reasonably be expected to relet for a sum which, when discounted to the date of breach, would total $10,000 or more, not a lesser amount such as the $8,000, there would be no damages.

C. Calculation of Damages as of the Date of Breach

Conceptually, all damages as of the date of breach are prospective, and yet the trial on damages will typically take place several months (or even years) later. This means there will be a pretrial period for which actual damages can be ascertained, as well as a post-trial period of future damages. Accordingly, in a variety of situations, courts have commonly recognized two separate calculations of damages beginning, as the case may be, from the date of injury or breach: (1) the damages actually realized before trial, and (2) the damages for the period after trial calculated on the basis of estimates discounted to the date of trial. See Deakle v. John E. Graham & Sons, 756 F.2d 821, 828-29 (11th Cir. 1985) (lost wages for partial disability); In re Air Crash Disaster Near Chicago, Illinois, on May 25, 1979, 644 F.2d 633, 642-44 (7th Cir. 1981) (wrongful death); Taylor Publishing, 686 S.W.2d at 216-17 (anticipatory breach of lease).

This two-part analysis is apparently justified in the theory that, because accurate damages can be ascertained for the period between breach and trial, such actual damages should not be ignored in favor of a calculation for that period based on a less exact, hindsight estimate as though no provable damage had yet occurred. In short, under this approach the damages are a combination of actual pretrial damages and predicted post-trial damages, the latter being a sum discounted to the date of trial.

Section 12.4 of the Smith-CUIC lease specifically calls for calculation of all damages as of the date of the breach. See (supra) note 12. Smith's evidence of damages, however, reflected the more typical bifurcated approach: (1) actual pretrial damages and (2) estimated post-trial damages, discounted to the date of trial. We therefore confront this question: Can Smith's proof of damages at trial be said to equal the total damages that would have been calculated, as ยง 12.4 requires, by using entirely prospective estimates from the date of breach, discounted to the date of the breach? This inquiry spawns two subsidiary questions: (1) Because the damages that accrue during the period between breach and trial are not discounted, will such use of actual damages improperly inflate the damages awardable for that period? (2) Because real estate market conditions can dramatically change ...

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