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Adler v. Abramson

April 08, 1999


Before Farrell and Reid, Associate Judges, and King, Senior Judge.

The opinion of the court was delivered by: Farrell, Associate Judge

Notice: This opinion is subject to formal revision before publication in the Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the Court of any formal errors so that corrections may be made before the bound volumes go to press.

Appeal from the Superior Court of the District of Columbia (Hon. Henry H. Kennedy, Jr., Trial Judge)

Argued February 24, 199

This appeal is from a judgment, after a bench trial, rejecting claims that the defendants had charged excessive management fees to, and double-billed, the plaintiffs, commercial tenants of a building owned by the defendants and managed through defendants' affiliate companies. The primary question is whether the operating expenses clause of the parties' lease, allowing the tenant to be charged with, among other things, management fees "not to exceed 5% of gross collections," is subject to an implied condition that those fees not exceed a market rate. The trial court answered the question no, finding the disputed clause to be unambiguous. We agree. *fn1 Since we also find no abuse of discretion in the court's refusal to consider the double-billing claim, we affirm.


The building in question, named Washington Square, is owned by the Washington Square Limited Partnership ("WSLP"), in turn comprised of members of two families, the Abramsons and the Lerners. The building is managed jointly by the Tower Companies and the Lerner Corporation, owned respectively by the Abramson and Lerner families. In 1983, after lease negotiations involving the exchange of many drafts, the law firm of Gibson Dunn & Crutcher (hereafter "Gibson Dunn") rented a sizeable portion of the building as office space. The lease provides for two types of rent, Basic Rent and Additional Rent, the latter largely reflecting the annual costs of managing and operating the building. For the most part, the Additional Rent charged consists of "operating expenses," which the lease provision at issue defines in relevant part as follows:

"For purposes hereof, the term "Operating Expenses" shall mean all costs and expenses paid or incurred by Lessor in connection with the management, operation, servicing and maintenance of the Building and common grounds including, but not limited to, employees' wages, salaries and welfare and fringe benefits . . . [there follows a lengthy enumeration of other expenses]; and management fees not to exceed 5% of gross collections."

The last phrase is at the center of this appeal. During each year of the lease since 1988, when the operating expenses provision took effect, WSLP "paid or incurred" management fees of at least "5% of gross collections" to its management companies and charged them to Gibson Dunn ("passed them through," in the argot of the trade) as an operating expense to the extent allowed, 5%. In 1995, Gibson Dunn brought suit alleging that the management fees charged did not reflect the prevailing market rate for fees charged by other management companies. As amended, the complaint also alleged that reading the lease to allow a pass-through of 5% without regard to market rate violated an implied covenant of good faith and fair dealing.


WSLP argued at trial, and the trial court agreed, that the lease unambiguously allows WSLP to pass through management fees which it actually pays or incurs, provided that -- and only that -- the fees do not exceed 5% of gross collections. Gibson Dunn disputes this Conclusion by asserting that the parties meant the 5% figure to be a cap on annual pass-throughs, but that the actual percentage charged each year would be determined by market usage, i.e., the prevailing market rate. Gibson Dunn presented testimony at trial to establish that the market rate during the leasing period was no more than 3% of gross rents; WSLP presented contrary evidence that there was no single market rate for management fees.

Under the "objective law" of contract interpretation followed by this court, Sagalyn v. Foundation for Preservation of Historic Georgetown, 691 A.2d 107, 111 (D.C. 1997), the written language of a contract governs the parties' rights unless it is not susceptible of clear meaning (or is the result of fraud, duress, or mutual mistake). Id.; Minmar Builders v. Beltway Excavators, Inc., 246 A.2d 784, 786 (D.C. 1968). In deciding whether contract language has a "clear meaning," the court asks "'what a reasonable person in the position of the parties would have thought the disputed language meant.'" Sagalyn, 691 A.2d at 111 (quoting Intercounty Constr. Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C. 1982)). The reasonable person is presumed to know "'all the circumstances before and contemporaneous with the making of the [agreement],'" and "is bound by all usages which either party knows or has reason to know." Id. (citation omitted).

A reasonable person reading the "operating expenses" provision would see that it places two limits on the management fees the lessor may pass through. First, those fees must have been "paid or incurred" by the lessor, and second, they may not "exceed 5% of gross collections." The provision contains no express third limitation that such fees must be "reasonable" as determined (in Gibson Dunn's words) by "some outside measure," namely market rate. The absence of this additional qualifier is conspicuous because, elsewhere in the lease, the parties expressly referred to "fair market . . . value" or a similar external measure when they meant to incorporate that standard. Even more, as the trial court pointed out, they provided a mechanism by which market value could be determined and a means for resolving disputes over it. *fn2 The absence of such a reference in regard to management fees is an objective indicator that the parties intended no other conditions than those specified.

Gibson Dunn points out that "it is common practice for courts to imply a price term based on prevailing rates and industry custom." But the cases it cites for this proposition dealt with agreements that "contain[ed] no standard as to the price to be paid." Day v. Len-Metal-Fab, Inc., 212 A.2d 426, 428 n.1 (Conn. App. Ct. 1965). The agreement here expressly states the management fees WSLP may recover -- those it in fact incurs, so long as they do "not . . . exceed 5% of gross collections." There is no third term to be applied unless one assumes, with Gibson Dunn, the point at issue: that the pass-through must conform to market rate. Gibson Dunn also observes that none of the other operating expenses listed is qualified by a market-based or reasonableness standard, leading it to ask (rhetorically) whether WSLP could charge the lessee with plainly unreasonable wages, janitorial costs, or other expenses. ...

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