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

Court of Appeals of Columbia District

March 13, 2014

BLT BURGER DC, LLC, APPELLANT,
v.
NORVIN 1301 CT, LLC, APPELLEE

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.

OPINION

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.

I.

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 ...


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