Appeals from the Superior Court of the District of Columbia Civil Division (Nos. LTB 11523-03, CAB 10400-02) (Hon. Stephanie Duncan-Peters, Motions Judge, and Hon. Anna Blackburne-Rigsby, Trial Judge).
The opinion of the court was delivered by: Glickman, Associate Judge
Before REID, GLICKMAN and THOMPSON, Associate Judges.
These consolidated appeals pit guarantors of a commercial lease against the landlord and each other. In the proceedings below, the landlord entered into a settlement agreement with the tenant, a corporation wholly owned by the guarantors, to recover possession of the leased premises after the tenant defaulted on its obligations in the wake of a disastrous fire. The landlord thereafter secured a judgment against each of the guarantors for unpaid rent and other damages, including attorney's fees. In the same action, the guarantors were adjudged liable to each other for contribution but not full indemnification. The appeals raise four main issues: (1) whether one of the guarantors had the authority he claimed to have to enter into the settlement agreement with the landlord on the tenant's behalf; (2) whether the settlement operated to release another guarantor from his obligations to the landlord; (3) whether the guarantors are jointly liable to the landlord for the attorney's fees it incurred to enforce their guarantees; and (4) whether the guarantors must contribute equally to pay their common debt (as the trial court ruled) or in proportion to their ownership interests in the principal obligor.
For the most part, we affirm the judgments on appeal. We uphold the validity of the settlement pursuant to which the landlord regained possession from the tenant and conclude that it did not operate to discharge the objecting guarantor. We also hold that the guarantors are liable for the landlord's attorney's fees. However, while we affirm the trial court's rejection of the guarantors' cross-claims for full indemnification, we remand for further consideration of the proper measure of their contributive shares.
I. Factual Background*fn1
On May 29, 2001, Green Leaves Restaurant, Inc. ("Green Leaves"), a newly created District of Columbia business corporation, signed a five-year lease with 617 H Street Associates for a building in the Washington, D.C., neighborhood commonly known as Chinatown. Green Leaves's three shareholders -- Michael Cheah, Kevin Yu, and Wan Kam Lee -- signed the lease as guarantors, "individually and severally warrant[ing]" that all of the tenant's obligations would be "the personal responsibility and liability of each and all of" them as well. In addition to paying rent and local business taxes, Green Leaves's obligations under the lease included securing adequate fire insurance coverage and maintaining the condition of the premises.
The three owners of Green Leaves also served as its officers and directors. Michael Cheah, who was a 50% shareholder, was Green Leaves's president. Kevin Yu, a 25% shareholder, was corporate secretary. Wan Kam Lee, also a 25% shareholder, was vice-president. Of the three investors, only Cheah had experience as a restaurateur. Cheah already owned several other restaurants, and during the summer and fall of 2001 he was constructing a new Malaysian restaurant in Bethesda, Maryland. In contrast, Yu and Lee had little relevant business experience. Yu was only twenty-years-old; his father, Kam Yu, bankrolled his investment in Green Leaves so that he could learn the restaurant business from Cheah. (Kam Yu had a restaurant of his own in Chinatown, in which his son had worked as a waiter and deliveryman.) Lee was a housewife; her husband owned the Kwong Wong Construction Company, which Cheah had hired as the contractor for his restaurant in Bethesda. Cheah originally expected Yu's father and Lee's husband to be his partners in Green Leaves, but with his consent they substituted Kevin Yu and Wan Kam Lee at the last minute. Perhaps for that reason, Cheah, Yu and Lee failed to discuss or clarify their individual roles and responsibilities in the new enterprise.
The building leased by Green Leaves housed a Chinese restaurant, which Green Leaves purchased for $60,000. Cheah, Yu and Lee contributed the funds for that acquisition in proportion to their shareholdings. Their plan was to convert the property to a Malaysian restaurant after Cheah completed his pending project in Bethesda and could turn his attention to the Chinatown venture. In the meantime, Green Leaves retained the incumbent manager to continue running the Chinese restaurant. Cheah, Yu and Lee did not involve themselves in the restaurant's operation.
Green Leaves's plans for 617 H Street were never realized. Only four months after the lease was signed, a fire gutted the restaurant. In the aftermath of this calamity, it was discovered that Green Leaves had neglected to obtain fire insurance coverage in an amount equal to the full replacement value of the premises, as the lease required. Cheah, Yu and Lee had never discussed who would be responsible for attending to this obligation. (Cheah subsequently claimed that Yu's father had promised him he would take care of it for them.) The only applicable insurance was a pre-existing $75,000 policy (with a $1,000 deductible) that covered damage to the restaurant kitchen. With property damage ranging from $120,000 (Cheah's initial rough estimate) to $400,000 (the insurance adjustor's estimate), the kitchen policy was plainly inadequate to fund the necessary repairs. The restaurant ceased operations. Green Leaves stopped paying rent, which began to accrue at the rate of $10,000 a month and increased to $11,000 a month in the second year of the lease. At some point following the fire, Cheah and his fellow shareholders ceased communicating with each other.
There was a lengthy delay in obtaining the proceeds of the $75,000 insurance policy, apparently because Cheah insisted that the carrier cover the entire loss without regard to the coverage limits. Ultimately, in September 2002, after Cheah effectively bowed out, Yu dealt with the insurance company and agreed on Green Leaves's behalf to accept the policy limit. Yu deposited the insurance proceeds (which, net of the deductible, amounted to $74,000) in Green Leaves's corporate bank account and disbursed $20,000 to 617 H Street Associates in partial payment of the rent arrearage.
Without Cheah's participation, Yu also obtained bids to repair the fire-damaged building from Kwong Wong Construction (the company owned by Lee's husband) and a second contractor. Yu hired Kwong Wong to repair the fire-damaged building for $212,000, which was the lower of the two bids he had received. Yu used the remaining $54,000 in insurance proceeds to pay Kwong Wong, and he and Lee together paid the balance due of $158,000 in equal shares with financial help from Yu's father.*fn2 Cheah, who had not been consulted, did not contribute to the cost of the premises restoration.
By the end of 2002, Green Leaves was in arrears for more than a year's worth of back rent, and the fire damage was still unrepaired. The landlord then brought two actions in Superior Court. First, on December 16, 2002, 617 H Street Associates sued Green Leaves and its shareholders, the latter in their capacity as guarantors. The complaint sought monetary damages for unpaid rent, estimated repair costs, and anticipatory breach of the lease. Green Leaves never answered the complaint. The guarantors answered and cross-claimed against each other for indemnification or contribution. Cheah filed his answer and cross-claims in January 2003. Yu and Lee, who were not served with the complaint for several months, did not answer until October 2003.
Second, in March 2003, 617 H Street Associates sued Green Leaves in the Landlord and Tenant Branch of Superior Court to recover possession of its property. On the return date, April 18, 2003, Yu appeared in court and executed an affidavit stating that he was an officer of Green Leaves and was authorized to enter into a binding consent agreement on its behalf. Yu then signed a settlement agreement with Audrey Wong, the managing partner of 617 H Street Associates. The agreement provided that Green Leaves would pay the rent arrearage of $152,000 on or before April 20, 2003 (i.e., within two days). The agreement further provided that if the overdue rent was not paid by April 20, Green Leaves would vacate the leased property and the landlord would take immediate possession and then "seek judgment [sic] against any officer of Green Leaves Restaurant, Inc. pursuant to the lease agreement." As the parties anticipated, Green Leaves made no payment, and 617 H Street Associates repossessed the building on April 20. The next day, 617 H Street Associates leased the property to Yu's father.
Yu entered into the settlement agreement with the consent of Lee, but without the consent of Cheah. In March of 2004, Cheah moved in Green Leaves's name to vacate the settlement -- among other reasons, on the ground that Yu lacked authority to settle on the corporation's behalf -- and to dismiss the landlord and tenant action. The case was consolidated with the landlord's still-pending damages action against the guarantors, in which the parties filed cross-motions for summary judgment.
In September 2004, the court denied Green Leaves's and Cheah's motions and awarded partial summary judgment to the landlord with respect to the defendants' obligation to pay rent through April 20, 2003,*fn3 plus local business taxes and attorney's fees in amounts to be determined at trial. In a subsequent order, the court granted partial summary judgment to Yu and Lee on Cheah's cross-claims against them for full indemnification and an accounting. Following a bench trial, the court granted final judgment to 617 H Street Associates for $1,239.49 in business taxes and $21,495.51 in attorney's fees. The court further ruled that the three guarantors were entitled to contribution from each other on an equal basis -- meaning that each guarantor would be obligated to contribute one-third of the total liability -- for the rent, taxes and attorney's fees awarded to the landlord and the $158,000 paid by Yu and Lee to fulfill Green Leaves's contractual obligation to repair the premises.
III. Validity of the Settlement Agreement
Green Leaves (at Cheah's direction*fn4 argues that the motions judge erred in denying its motion to vacate the settlement agreement with 617 H Street Associates. The question turns on whether Yu possessed either actual or apparent authority to enter into that agreement on behalf of the corporation. The judge doubted that Green Leaves had established Yu's lack of actual authority as a corporate officer, and found that, ...