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BLT Burger DC, LLC v. Norvin 1301 CT, LLC

Court of Appeals of Columbia District

March 13, 2014


Argued January 7, 2014

Page 1140

Appeal from the Superior Court of the District of Columbia. (CAB-8602-10). (Hon. Anthony C. Epstein, Trial Judge).

Paul J. Kiernan, with whom John F. Stanton and Adam M. Blank, were on the brief, for appellant.

Allen V. Farber, with whom Gregory A. Mason and Adam Scott Kunz, were on the brief, for appellee.

Before BECKWITH and MCLEESE, Associate Judges, and FERREN, Senior Judge.


Page 1141

Ferren, Senior Judge.

BLT Burger DC, LLC (Tenant) appeals an award of damages to Norvin 1301 CT, LLC (Landlord) totaling $158,542 in unpaid rent, taxes, and insurance, and an additional $5.7 million in diminished value of the property that Tenant leased but abandoned after a dispute erupted over the parties' respective responsibilities. Tenant stopped paying rent and Landlord brought an action for possession, whereupon Tenant surrendered the premises. Landlord then re-entered the property, listed it for rent or sale, and eventually sold it as part of a package with another building that Landlord owned nearby. Tenant sued for breach of the lease, and Landlord counterclaimed alleging Tenant's breach. The trial court granted judgment for Landlord as a matter of law on Tenant's claim, as well as judgment for Landlord

Page 1142

on its counterclaim. Only the damages awarded on the counterclaim are at issue here. We vacate (subject to reconsideration on remand) the $158,542 awarded for unpaid rent, taxes, and insurance allocable to the period before sale of the properties; affirm the trial court's ruling that Landlord is entitled to diminished value damages, but vacate the award of $5.7 million; remand for further proceedings to determine the correct calculation of damages; and remand for reevaluation of the attorney's fees and costs awarded Landlord.


Landlord owned a three-story townhouse located at 1317 Connecticut Avenue, N.W., which it rented to Tenant for ten years under a lease dated February 17, 2010. Rent commenced on August 3, 2010, beginning with a base rent of $16,000 per month that was to increase over time. Under the lease, Tenant was required to complete approximately $1.8 million worth of construction described as " Tenant's Work" necessary to make the premises suitable for a restaurant. Tenant also was required to pay real estate taxes and insurance amounting to $94,000 and $13,500, respectively, in the first year. Landlord, in return, was required to pay Tenant $200,000 in partial reimbursement of construction costs. The lease also provided for payment of " percentage rent," under which Landlord would eventually be entitled to a portion of Tenant's gross sales from restaurant operations.

Section 23A of the lease provided that in the event of Tenant's default and Landlord's re-entry, Tenant would remain liable for " any and all damages, deficiency or loss of rent," while " Landlord reserve[d] full power . . . to relet the Premises for the benefit of Tenant." The lease further provided that in the event of " termination," Landlord was entitled to recover the difference between [1] the " cash value of the rent and other charges reserved . . . for the unexpired portion of the Term," and [2] the " then cash rental value . . . for such unexpired portion of the Term" (after deduction of " Landlord's relet costs" ).[1]

Section 23E provided that the remedies specified in the lease were " cumulative" and " not intended to be exclusive of any other remedies to which Landlord may be lawfully entitled."

Tenant paid Landlord a $100,000 security deposit and rent for the first month (August 2010) but did not pay rent, taxes, or insurance thereafter. On October 13, 2010, Tenant wrote Landlord by email that Tenant had put the construction project " on hold [until] issues are resolved with the landlord," because Landlord had allegedly failed to correct structural issues with the property and had caused delays in obtaining a construction permit. The next day, October 14, 2010 Landlord sent Tenant a notice of default for failure to pay rent and other required charges and demanded that Tenant make all past due payments by October 26, 2010.[2] Tenant did not make the payments, and Landlord sent Tenant a notice of termination on October 28, 2010.

Page 1143

On November 4, 2010, Landlord filed suit against Tenant in the Landlord and Tenant Branch of Superior Court seeking possession of the premises and back rent. In response, Tenant left the premises and returned the keys to Norvin on December 3, 2010. Landlord subsequently engaged a leasing brokerage company to relet the premises. Landlord also owned the adjoining building at 1301 Connecticut Avenue, N.W., and simultaneously with its leasing effort engaged another broker to sell both buildings as a package. On July 6, 2011, Norvin sold the two together for $27 million.

On November 12, 2010, Tenant sued Landlord in Superior Court, alleging breach of the covenant of quiet enjoyment and various provisions of the lease. On December 8, Landlord answered and counterclaimed, alleging Tenant's breach for nonpayment of amounts due, as well as for failure to complete the Tenant's Work that would have " added value to the Premises." In its counterclaim, Landlord sought " all damages, deficiencies, loss, costs and expenses in rent, reasonable attorney's fees, court costs, brokerage commissions, and expenses incurred in preparing the Premises for reletting, as well as any and all other damages suffered by Landlord," estimating an amount " not less than $1.8 million" plus attorney's fees and other costs.

During discovery Landlord revised the estimate, informing Tenant that Landlord was then seeking $5.6 million in damages " as a result of being deprived of the increased value of the property caused by [Tenant's] breach. . . . But for [Tenant's] breaches of the Lease, [Landlord] would have been able to increase the sale value of the building by $5.6 Million, if not more."

On May 16, 2012, the parties filed a Joint Pretrial Statement. Landlord identified, as relief sought, " an award in its favor to include, but not limited to, the dollar amount of lost rent, the loss sustained by [Landlord] as a result of [Tenant's] failure to do the Tenant Work (thereby adversely affecting the value of the building), real estate brokerage commissions paid by [Landlord], pre-judgment and post judgment interest, attorney's fees, expenses and costs." In the pretrial statement, Landlord identified its principal, Norman Livingston, as a fact witness.

The bench trial began February 4, 2013. At the close of Tenant's case in chief, the trial court granted Landlord's motion for judgment as a matter of law, ruling that Tenant, not Landlord, had breached the lease. Landlord then proceeded to present proof of damages. Counsel described Landlord's theory of diminished value: " If the tenant had fulfilled its obligations and done its build out and if it was paying rent as it was suppose[d] to. And . . . if it was paying $16,000 a month, the increased value for sale purposes would have been an additional $5 million or so using the cap[italization] rate that was used for the transaction."

Thereafter, Landlord's principal, Norman Livingston, testified that the sale price of $27 million for the joint sale of the two buildings had been determined by using a 5.25% capitalization rate. He explained, more specifically, that the price had been calculated by dividing the " income, after all of the expenses have been paid on the property," by that rate. He further testified that because BLT had not paid rent, there was " no net income" from 1317 Connecticut Avenue (the premises previously leased to BLT) to factor into the calculation. As a result, he concluded, the sale price was $5.7 million less than if BLT had been paying the rent due.

During Livingston's testimony when his credentials were being established, counsel for Tenant stipulated that Livingston " knows about investment capitalization"

Page 1144

and the " area" of " finances." Counsel objected, however, to Livingston's testimony to a limited extent, arguing that Landlord was claiming, improperly, that " the value of the building was affected by [Tenant's] not doing improvements." Counsel for Tenant also argued that, upon sale of the properties, " any further claim of damages or rents is cut off as of that date." Tenant, however, did not present evidence on Landlord's damage claim.

The trial court found that Livingston had " the expertise necessary" to establish the value of the building; that applying the capitalization rate was a " reasonable approach to the estimation of damages" ; and that Landlord had made reasonable attempts to mitigate damages. The court then awarded damages totaling $158,542 for rent, taxes, and insurance for the period from the rent commencement date (August 3, 2010) through the sale of the premises (July 6, 2011), reduced by $116,000 in the rent and security deposit that Tenant had paid.[3] Additionally, the trial court awarded Landlord $5.7 million in diminished value damages.

On February 25, 2013, Tenant filed a motion to alter or amend judgment pursuant to Super. Ct. Civ. R. 59 (e) (2012 Repl.), on the grounds that judgment should have been entered for Tenant and, alternatively, that the trial court improperly calculated Landlord's damages award. The trial court denied the motion on March 27, 2013, ruling that the motion had been untimely filed but that in any event it failed on the merits. In addition, the court granted Landlord's motion for an attorney's fees award of $200,000. Tenant filed a timely appeal.


The principal questions on appeal are:

1. Whether the sale of the 1317 property entitled Landlord to damages measured by reference to its diminished value upon sale after termination and surrender of the lease;

2. If diminished value damages are awardable, whether the $5.7 million was properly calculated;

3. Whether the lease entitled Landlord to recover damages attributable to the unpaid rent, taxes, and insurance during the period between termination and surrender of the lease (December 3, 2010) and the sale of the formerly demised premises (July 6, 2011).



In addressing these issues, we begin by outlining the approaches to damages for breach of a lease commonly taken in this jurisdiction. In Truitt v. Evangel Temple, Inc .,[4] this court acknowledged three long-established options that a landlord has when the tenant wrongfully abandons the premises and repudiates the lease: (1) accept the abandonment and terminate the lease in full satisfaction; (2) refuse to acquiesce in the abandonment, re-enter and relet the premises, and hold the tenant liable for any deficiency in the rent; or (3)

Page 1145

refuse to re-enter, allow the premises to remain vacant, and hold the tenant for the full rent.[5] Landlord exercised the second option, with its obligation to mitigate Tenant's damages by attempting to relet -- a remedy detailed in § 23A of the lease. This case, however, adds a twist: Landlord simultaneously advertised 1317 for rent and for a packaged sale with 1301, culminating in a sale of the combined properties for $27 million.

The question thus becomes: when a landlord augments its effort to mitigate damages by simultaneously offering the premises for sale as well as for rent -- intending, presumably, to take the best offer all things considered -- how does this hybrid approach affect the nature and amount of the damages a tenant can be expected to pay for the breach? As yet, there has been no answer under District of Columbia law; thus, we look at how other jurisdictions have resolved issues of damages upon sale of property surrendered after breach of a lease.

There is a split of authority as to whether sale of the property is appropriate mitigation or, instead, cuts off a landlord's right to damages at time of sale. Some courts appear to permit collection of damages calculated by reference to the rent lost during a period of reasonable diligence to relet the premises after termination and surrender, but they would preclude an award of further damages attributable to lost rent for the period after the date of sale.[6] The Maryland Court of Appeals, for example, has observed that a " resale, akin to reletting for a term longer than the original term, is so inconsistent with the tenant's estate as to allow for no other interpretation than that the landlord had reentered in order to accept a surrender" -- an act that, under Maryland law, " terminated the tenancy altogether" with no " further obligation to pay rent." [7]

Other case law, however, recognizes that a sale of formerly leased property after reasonable diligence to relet " is an appropriate effort to mitigate damages" calculated by reference to the diminished value of that property after the breach.[8] New

Page 1146

York's Latham Land decision[9] is particularly informative because the facts are so similar to those we consider here. The parties entered into a contract whereby the defendant-tenant agreed to build, lease, and operate a restaurant on a portion of the plaintiff-landlord's property. However, ten months after the contract was signed, following a period of disputes between the parties, the tenant -- never having commenced construction -- terminated the contract. The landlord sued, and, failing to find another tenant, ultimately sold to a third party both the property designated for the lease and an adjacent parcel already improved with another restaurant. As damages, the landlord did not seek " actual rent due" because the tenant had not yet " create[d] the leasehold estate promised by the contract." [10] Rather, the landlord sought and recovered general damages " for the loss of the value of the leasehold interest promised by the parties' agreement," measured by the diminished " value of [the] property following defendant's breach" compared to what the value " would have been had [the tenant] honored the lease agreement." [11]

If, contrary to Latham Land's approach, we were to honor the first line of cases from Maryland and Wisconsin,[12] Landlord would be entitled to the trial court's award of $158,542 in damages attributable to unpaid rent, taxes, and insurance up to the date of sale,[13] but not to the award of diminished value damages. More specifically, if a sale (as opposed to reletting) is inconsistent with recognized mitigation of damages for breach of the lease -- that is, if a sale is tantamount to unqualified acceptance, rather than rejection, of a surrender -- then after-sale damages would not be allowable; only an award of damages reflecting unpaid rent and related costs that accrued before the sale, while the landlord was trying diligently to relet the premises, would be consistent with the rent-related damages normally awarded upon termination and surrender.

If, on the other hand, we were to conclude that a sale after surrender and termination could be characterized as appropriate mitigation of the breach, as New York, New Jersey, and California courts have ruled,[14] and if that sale were to have resulted in diminished value of the property

Page 1147

when compared to its value with the lease in place, then we would have to accept the trial court's decision to award such damages if, but only if, such an award is consistent with the damages provisions in the lease -- to which we now turn.


Tenant, as the appellant, has the burden of proving trial court error in selecting the measure and calculating the award of damages. Citing Maryland's Wilson decision,[15] Tenant stresses that § 23A of the lease contains extensive language measuring Landlord's remedies solely by reference to lost rent, leaving no room for damages based on the " diminished value" of property sold (rather than relet) after termination of the lease. Tenant did not make that argument at trial, however, but the argument fails in any event because the proffered legal predicate for it is insufficient. The case law on which Tenant relies does not contemplate the kind of lease provision, present here, that authorizes remedies other than -- i.e ., as alternative to -- the options that we recognized in Truitt v. Evangel Temple, Inc .[16] Section 23A itself permits the award of " any and all damage, deficiency or loss of rent," but, of more direct significance, § 23E, a catch-all provision, expressly authorizes -- in addition to the relief prescribed in § 23A -- all " other remedies to which Landlord may be lawfully entitled."

Tenant does not persuasively interpret § 23E in a way that would limit its reach to discrete and subordinate damages, such as injury to the premises or unpaid construction costs -- a restrictive reading that, in Tenant's view, would leave § 23A alone to prescribe all remedies for a breach justifying termination. To the contrary, in light of persuasive case law we have cited from New York and other jurisdictions,[17] we read § 23E to have " lawfully entitled" Landlord, upon termination of the lease, to recover damages by selling the property and seeking relief based on diminished value of the premises, if reletting was not a realistic option and the facts otherwise justified that remedy.[18]

Tenant does not argue on appeal that Landlord lacked diligence in seeking a successor lessee to mitigate damages. We, therefore, turn to Tenant's arguments as to why, in the alternative, diminished value is not a proper measure of damages under the circumstances before us. Tenant did not contend at trial that the lease categorically precluded diminished value damages; and, as briefly noted earlier and elaborated below, Tenant only partially contested at trial whether Landlord effectively alleged that theory. Tenant's new counsel on appeal attempts to make up for these oversights -- and push diminished value damages out of the case - by stressing that the only pretrial reference to the claimed $5.7 million in diminished value was a one-sentence reference to $5.6 million in an answer by Landlord to an interrogatory; that according to the Joint Pretrial Statement, Landlord had subsequently limited its concern about diminished value to a claim that Tenant had failed to undertake " Tenant Work" required under the lease for renovation of the premises as a restaurant (earlier claimed by Landlord to cost Tenant $1.8

Page 1148

million); and that the Pretrial Order limited all claims and defenses to " those described in the parties' Joint Pretrial Statement . . . absent a showing of good cause or excusable neglect."

Over minimal, virtually irrelevant objection, however, the trial court -- implicitly relying on " good cause" or " excusable neglect" -- informally modified the Pretrial Order by permitting Landlord's witness, Norman Livingston, to testify at trial in support of the $5.7 million. Apparently misperceiving where Livingston's testimony was headed, Tenant's counsel objected only to the testimony about value attributable to failure to complete " improvements" (the Tenant Work), an objection incorporated within counsel's more fundamental contention (rejected above) that sale of the property cut off all damages.[19]

In our view, new counsel on appeal fails to establish that counsel for Tenant at trial had preserved a categorical attack on diminished value damages. Counsel on appeal contends, nonetheless, that diminished value damages have not been established because they are " special," not " general," damages; they must be specially pleaded as such; they can be proved only through expert testimony; the $5.7 million award failed that " expert" requirement because Livingston was not properly qualified for that purpose; and Livingston's valuation in any event was invalid as a matter of law -- to the point of plain error, a manifest miscarriage of justice.[20]

The Latham Land I case from New York characterized damages on facts almost identical to those here as general damages,[21] whereas other courts (typically considering damages allegedly caused by anchor tenants to other proprietors in shopping malls) have characterized diminished value as special damage.[22] We need not decide the nature of the damages here, however, as Tenant never questioned at trial whether the damages articulated by Livingston were special or general, or whether Livingston's theory was pleaded properly or not. The first important question on valuation, therefore, is whether

Page 1149

expert testimony is required for the valuation of Landlord's damage claim.

Without acknowledging that expert testimony is required, Landlord contends that Tenant stipulated at trial to Livingston's expert ability to spell out why Landlord's diminished value damages totaled $5.7 million.[23] The stipulation to which Landlord refers was counsel's statement that Livingston " knows about investment capitalization and the area, I guess, finances." That is hardly a stipulation that comes to grips with the kind of expertise needed. On the other hand, at the time this stipulation was offered, counsel had not been objecting to Livingston's testimony beyond questioning whether failure to complete the Tenant Work was germane to valuation of damages -- far from a fundamental rejection of Livingston's testimony. Under these circumstances, therefore, we cannot stand in the way of Landlord's contention that Tenant did not effectively object to Livingston's testimony as an expert on the damages claimed.

This appeal has been premised, by both parties, on the assumption that if diminished damages are awardable at all, they shall be awarded -- upon proper computation.[24] We come, therefore, to the dispositive question: whether Norman Livingston's valuation of $5.7 million in damages can stand.


We must conclude, in light of compelling case law from this jurisdiction, that Livingston's methodology was flawed at the core. Despite Tenant's failure to challenge it effectively at trial, we must agree with Tenant's counsel on appeal that a manifest miscarriage of justice occurred.

To calculate diminished value, Livingston first applied a 5.25% capitalization rate to the income generated by 1301 alone, the computation, he says, that generated the $27 million sale price for 1301 and 1317 combined. Next, in order to calculate how much more the combined properties would have been worth if Tenant's lease had remained in place, Livingston took the " first year's net rent" (including real estate taxes and insurance) from 1317, which totaled approximately $299,000, and applied the same 5.25% capitalization rate, dividing $299,000 by .0525. The result was approximately $5.7 million -- the amount, according to Livingston, that represented the value lost to the packaged properties as a result of the

Page 1150

missing income stream attributable to 1317 when leased.

We begin our review of the $5.7 million by noting an important concession by counsel for Landlord. At oral argument he was asked whether he agreed that if 1317 " had some value, then the $5.7 million number has to be incorrect?" To which counsel replied, " I think that that's likely a fair statement." [25] Next, without regard to other claimed errors in Livingston's methodology, we note four fundamental mistakes. First, Livingston erroneously justified the sale price for the combined properties ($27 million) by excluding all potential income from 1317, which was vacant at the time of sale. He thereby posited a substantially deflated value of the properties. Given the income potential of 1317, one cannot reasonably say that its temporarily vacant state permitted valuing that property at zero dollars.

Second, Livingston used a 5.25% capitalization rate for the sale of both properties (1301 and 1317), and yet testified that he had imputed " no net income" to 1317 and did " not know what . . . 1317 alone would have sold for." It is not clear, therefore, whether 1317 was actually priced into the deal and, if it was not, whether the capitalization rate should nonetheless have remained the same and the price still $27 million.

Third, in applying the income method of valuation, Livingston valued 1317 incorrectly by relying exclusively on one year's income under Tenant's abandoned lease. As explained more fully below, appraisal of the market value under the income method requires consideration of income over several years, commonly including income evidence from comparable properties.

Fourth, in taking what Livingston called the " first year's net rent" as the basis for calculating the capitalized value of 1317, Livingston included taxes and insurance as well as rent in his " net" rent figure. In doing so, he actually relied on a " gross" rent figure that overly inflated the lost value of the lease, and thus overly increased the diminished value of 1317 by erroneously exaggerating the difference between what the estimated selling price of the two properties (at market value) should have been and the $27 million Landlord received.[26]

Page 1151

Contrary to Livingston's approach, our case law, based on standard real estate appraisal literature,[27] indicates that under the income method of valuation, an appraiser should rely not on a property's current income but, rather, on an imputed income, which this court has characterized as " stabilized annual net income" derived by reference to income and expenses over a period of several years.[28] More specifically, the value of rental property, when based (as here) on the " income" method,[29] is a reflection of " income earning potential," meaning an estimate of the " present worth of a future income stream" that " an investor could expect from the building." [30] And that value can be derived not only from the earnings from the subject property for current and earlier years, but also from the " income streams for numerous other" comparable properties that offer perspective in finalizing the stabilized annual net income.[31] Of significance here, therefore, " [r]ent for vacant or owner-occupied space is usually estimated at market rent levels," not at zero, as Livingston posited for 1317 in justifying the $27 million selling price of 1301 and 1317 as a package.[32]

For the moment, however, let us take Livingston's own number. Assuming, as he testified, that the lease for 1317 had remained in place and that he relied on the same 5.25% capitalization rate for both properties, he calculated a diminished value for 1317 of $5.7 million. If so, Landlord's selling price, if not $32.7 million, should at least have exceeded the $27 million paid for both properties.[33] The fact

Page 1152

that Landlord settled for less should not be held against Tenant to the point of making up the entire difference. Because of Livingston's faulty (or at least non-established) premise that the $27 million represented the true market value against which diminished value damages should be measured, we have no way of knowing what that value should be. And because Livingston's valuation of 1317 itself was flawed, we have no way of knowing what the diminished value (if any) assessable against Tenant should be. In short, from Livingston's testimony we cannot discern a valid minuend or subtrahend, and thus a new hearing on diminished value is required.

We, therefore, must reverse the portion of the trial court's order awarding Landlord $5.7 million in diminished value damages and remand for further proceedings, including all additional, relevant evidence each party wishes to introduce, for proper calculation of the diminished value at issue and a revised order awarding damages for Tenant's breach.[34]


Tenant also questions the portion of the $158,542 awarded for unpaid rent, taxes, and insurance during the seven-month period between termination and surrender of the lease (December 3, 2010) and the date the properties were sold (July 6, 2011).[35] Tenant contends that under the lease and the law, this award is invalid, and that in any event the award fails because, when combined with diminished value damages, the result is double-counting of damages for this period.

The first question is whether Tenant raised, and thus preserved, a challenge to the $158,542 at trial. We believe that it did, albeit indirectly. Before trial, Tenant was only on notice, from the Joint Pretrial Statement, that Landlord was seeking damages for [1] " lost rent" and related expenses and attorney's fees, coupled with [2] the loss sustained " as a result of [Tenant's] failure to do the Tenant Work (thereby adversely affecting the value of the building)." At trial, however, the court permitted Landlord to inflate its " affected value" argument into a full blown " diminished value" measure of damages. Counsel for Tenant objected to the flow of argument on two grounds: that the Tenant Work was irrelevant to the measure of damages and that, in any event, " come to

Page 1153

sale[,] any further claim of damages or rents is cut off as of that date." In short, Tenant was advocating the Wilson [36] line of cases that, upon sale, damages from termination and surrender of the lease ended; only pre-sale damages were awardable. The trial court overruled the objection but invited counsel to " brief that."

Thereafter Landlord's witness, Norman Livingston, testified as to diminished value damages, concluding that they were $5.7 million. Landlord's counsel then referred to damages " prior to July of 2011" ( i.e ., before the properties were sold). Counsel had apparently submitted dollar amounts, which the judge was sorting through when he stopped to acknowledge Tenant's counsel. A long discussion ensued, not on the pre-sale damages but on diminished value damages, during which the judge, changing the subject again, commented that " the rent and the insurance and real estate taxes," before the sale, were " undisputed." After further discussion of diminished value, the trial court returned again to pre-sale damages, acknowledging Tenant's argument that Landlord's total damages should be limited to the pre-sale loss of " rent, real estate taxes, and insurance," without addition of post-sale diminished value damages, and inviting Tenant's counsel again to " brief the issue." The court then went on to calculate the net pre-sale damages at $158,542.[37] Whereupon the discussion turned to attorney's fees, followed by the court's announcement that it would be " entering judgment in the amount we just discussed" ($5.7 million plus $158,542). The court then acknowledged its anticipation of a Rule 59 (e) motion and invited the parties to " file whatever supplemental brief[s] you want to file."

At trial, therefore, counsel for Tenant, while arguing against diminished value damages, did not directly challenge the $158,542 pre-sale damage award. Presumably counsel failed to do so, however, because, under Tenant's theory of the case, if post-sale, diminished value damages were not awardable -- as Tenant was arguing -- then all pre-sale damages would be awardable. That is to say, only if Tenant were to lose the argument that the court invited its counsel to brief would Tenant be squarely faced with the $158,542 issue. Under these circumstances, therefore, it is not a stretch to say that, by inviting counsel to brief Tenant's opposition to diminished value damages, the court implicitly invited counsel to brief any fallback argument on damages in the event that the court were to reject counsel's principal contention. This understanding of the leeway the court was affording counsel is particularly appropriate because Tenant's trial counsel, in light of the Joint Pretrial Statement limiting all claims and defenses to " those described" therein (absent " good cause" or " excusable neglect" ), had little warning before trial that full blown diminished value damages would be claimed.[38]

Page 1154

Thus, counsel should not necessarily have been expected on the spot to articulate a fallback objection in this complicated area of damages analysis.

In its Rule 59 (e) motion, however -- now formally confronted with the trial court's order for diminished value damages -- counsel for Tenant began to argue that the court had also improperly granted Landlord " unpaid rent for September, 2010 through July, 2011," as well as damages for " the purported diminution in the value of the Building." Added counsel: " Wholly aside from this award's constituting double counting, it is insupportable as a matter of law and as a matter of fact" (emphasis added). Thereafter, the trial court rejected this " conclusory assertion" of " double counting" because the " damages relate to different time periods."

We believe that all things considered, Tenant's contention that it preserved a challenge to the $158,542 for appeal, including the double-counting argument, has some heft. We could not easily conclude under the circumstances that preservation failed on the ground that Tenant was required to present its pre-sale damages argument in full at trial, rather than offer it in the Rule 59 (e) motion that the trial court invited on the measure of damages.[39]

Page 1155

We, therefore, turn to the merits. In questioning the $158,452, Tenant implicitly erases its earlier concession that pre-sale damages under Ostrow could be awardable after termination and surrender of the lease. Tenant leads off its argument on appeal by stressing that Landlord exercised the first option under our Truitt decision,[40] meaning that Landlord, in terminating the lease and suing for possession, accepted surrender of the premises in full satisfaction of Tenant's lease obligations. It follows, says Tenant, citing our decision in Ostrow [41] that its obligation to pay " rent," as such, ceased as of the surrender date, December 3, 2010. Tenant next acknowledges, however, that also under Ostrow, Landlord would be entitled to post-surrender contract " damages" measured by the rent and related expenses unpaid under the lease, as mitigated by reletting the premises. Nonetheless, argues Tenant, by failing to relet -- by selling instead -- Landlord did not take the fundamental step necessary to claim contract damages; it forfeited that claim and accordingly is not entitled to the full $158,542.[42]

Tenant's analysis is flawed. In the first place, we have concluded that Landlord's simultaneous effort to relet and sell the 1317 property was an authorized pursuit of contract damages under § § 23A and 23E of the lease. Furthermore, the pre-sale damages awarded by the court reflect the very rental-stream lease provisions of § 23A that Tenant embraces. Thus, Tenant's argument -- that no damages are awardable for the seven-month period between surrender and sale because Landlord eventually sold rather than relet -- is a nonsequitur that must fail.[43] To this point in Tenant's argument, moreover, no " double counting" has been involved because Tenant never acknowledged any damages for that seven-month period. Once the trial court rejected Tenant's position, however, and confirmed that Landlord indeed was entitled to pre-sale contract damages, Tenant was primed for a fallback argument that those damages would result in double counting.[44]

Page 1156

To put that double-counting argument in perspective, it will be useful to refer again to New York's Latham Land decision, in which the landlord -- eschewing damages based on the " actual rent due" -- elected a different, single measure of damages: the diminished value of the property derived from an expert's calculation of the " difference between the value of the property with the lease in place" at the time of the breach, and " the value . . . actually received for the sale of the property" ten months later.[45] In contrast, Landlord in this case elected two, sequential measures of damages: first, the damages calculated by reference to the rent, taxes, and insurance payable under the lease during the seven-month period between surrender and sale, and second, post-sale damages represented by the diminished value of 1317 derived by comparing (1) the value of the property with the lease in place immediately before sale with (2) the lesser value represented by its allocable portion of the selling price of both properties (1301 and 1317). Although theoretically such two-step damage calculation may be feasible, we do not know from this record whether Livingston purported to arrive at his (miscalculated) diminished value as of the date of sale or, perhaps, had an earlier date -- or even no date -- in mind, leaving open the possibility of double-counting. We therefore vacate the $158,542 awarded to Landlord, subject to reconsideration on remand in connection with recalculation of diminished value damages.


Landlord filed an unopposed motion under Super. Ct. Civ. R. 54 (d) for an agreed upon amount of costs, expenses, and attorney's fees ($200,000) pursuant to § 23F of the lease. The trial court granted the motion in its March 27, 2013 order. According to Tenant's opening brief, the amount " was reasonable in light of the trial court's disposition of the case." Tenant argues, however, that if the damage award is vacated, we should " vacate the fee award as well" and " remand for determination of proper fees (if any)," depending on Landlord's level of success under the " prevailing party" doctrine.

" A party prevails if [it] succeeds on any of the significant issues in the litigation which achieved some of the benefits sought by bringing the suit." [46] Landlord remains the prevailing party on the issue of liability, thus entitling it to attorney's fees under § 23F of the lease. However, " [i]t is generally understood that the degree of success in litigation is a relevant factor in the award of attorney's fees." [47]

We express no opinion on whether the negotiated award, as such, should remain in place, other than to confirm that Landlord prevails here on the availability of diminished value damages. On remand, therefore, the trial court should reevaluate

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and assess, as appropriate, the " costs, expenses, and attorney's fees" awardable to Landlord in light of the parties' negotiated award and of the recalculated damages for lost rent and diminished value.


For the foregoing reasons, we vacate (subject to reconsideration on remand) the $158,542 awarded to Landlord for unpaid rent, taxes, and insurance during the period before sale; affirm the trial court's order to the extent of sustaining Landlord's right under the parties' lease to diminished value damages for Tenant's breach; reverse the order granting Landlord $5.7 million in diminished value damages and remand for further proceedings on that issue consistent with this opinion; and remand for reevaluation and assessment, as appropriate, of the " costs, expenses, and attorney's fees" awardable to Landlord.

So ordered.

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