Opinion
J-A33040-10 No. 744 EDA 2010
07-29-2013
NEWMAN DEVELOPMENT GROUP OF POTTSTOWN, LLC, Appellee v. GENUARDI'S FAMILY MARKET, INC., AND SAFEWAY, INC., Appellants
Appeal from the Judgment Entered February 25, 2010
In the Court of Common Pleas of Chester County
Civil Division at No(s): 2002-02413
BEFORE: FORD ELLIOTT, P.J., STEVENS, J., and DONOHUE, J. OPINION BY STEVENS, J.
Genuardi's Family Markets, Inc. and Safeway Inc., appeal a February 25, 2010 judgment entered in the Court of Common Pleas of Chester County in favor of Newman Development Group of Pottstown, LLC.
This matter stems from a dispute over a commercial lease originally entered into by Genuardi's and Newman, pursuant to which Genuardi's was to lease shopping center space from Newman ("Landlord"). Genuardi's was subsequently acquired by Safeway ("Tenant"). On February 13, 2002, Tenant informed Landlord that it was terminating the lease due to Landlord's failure to meet certain completion dates. On March 20, 2002, Landlord filed a complaint against Tenant, alleging, in pertinent part, that Tenant had breached the parties' contract. Complaint filed 3/20/02 at ¶¶ 57-59. The shopping center, named Town Square Plaza, was eventually completed in 2005, and replacement tenants Michael's and PetsMart were secured to fill the space slated for Tenant. On December 28, 2005, Landlord sold the shopping center to Inland, a buyer unrelated to this action.
The shopping center had not yet been constructed at the time the parties signed the lease.
An Amended Complaint filed subsequently filed on 7/1/02. Landlord sought damages in the amount of the lease over its twenty year period, and development costs and expenses. Landlord's Amended Pre Trial Statement specified that Landlord sought: A. "Reliance Damages" which were "based upon the difference between what Town Square Plaza is currently worth and what it would have been worth had [Tenant] not improperly breached its contractual obligations; B. "Additional Damages" consisting of costs associated with accommodating Tenant's site plane and site criteria changes; C. "Consequential Damages" associated with remarketing the property following Tenant's breach; and D. "Litigation Costs." Landlord's Amended Pre Trial Statement filed 8/25/05 at 8-11.
Although Tenant's Lease was for a twenty year period, the replacement tenants leases were for ten year periods only.
In due course, Landlord's complaint against Tenant resulted in a lengthy non-jury trial before the Honorable William P. Mahon, encompassing ten days of hearings conducted during October and November of 2005, and January 2006. At the conclusion of trial, Landlord requested that Judge Mahon award it damages of $5,511,219.00, representing the alleged lesser sale price received by Landlord when it sold the property in 2005 without Tenant in place. Landlord's Proposed Conclusions of Law Filed 4/5/06 at 52.
On August 15, 2006, Judge Mahon issued a Verdict and Opinion. With regard to liability, Judge Mahon determined that when Tenant notified Landlord in February 2002 of its intention to terminate the Lease, it anticipatorily breached the Lease. Opinion filed 8/15/06 at 11. As the result of this breach, Judge Mahon determined that Landlord was entitled to $131,227.00 in damages, representing the rent Landlord would have received from Tenant during the time period Landlord owned the property, offset by the rent received from the replacement tenants during that time period. Verdict filed 8/15/06; Opinion filed 8/15/06. Both parties filed post trial motions.
Judge Mahon described the February 2002 letter purporting to terminate the Lease as constituting an "unequivocal refusal to perform under the lease at any time."
The August 15, 2006 verdict was subsequently vacated and replaced by a second verdict filed on September 6, 2006, identical in all respects to the first but for the addition of a statement that the verdict was "exclusive of contractual counsel fees, expenses, and costs, the award of which to either party has yet to be declared." Verdict filed 9/6/06.
In response, Judge Mahon denied Tenant's post trial motion, and refused Landlord's request that the damage award by modified to reflect $5,511,219.00 in lost profits, but increased the damage award to $316,889.92, to reflect that the replacement tenants had not begun to pay rent until December 1, 2005, not June 25, 2005, as previously determined. Order filed 12/19/06 at 1. Both parties appealed to the Superior Court.
Following oral argument and the submission of briefs, the Superior Court issued a memorandum of law on April 25, 2008, affirming Judge Mahon's verdict with regard to liability and the existence of damages, but vacating the judgment and remanding the matter for the determination of the proper measure of damages on the grounds that Judge Mahon erred in failing to enforce the measure of damages set forth in Section 20.2.2. of the parties' Lease. Memorandum filed 4/25/08 at 12, 15, 19.
On January 15, 2010, Judge Mahon issued an Opinion, followed by a Verdict, entering judgment in favor of Landlord in the amount of $18,489,221.60 ($10,494,490.00 expectation damages; $30,808.00 reletting expenses; $6,279,734.26 interest; $1,684,189.34 attorneys' fees, costs and expenses). Opinion dated and filed 1/15/10; Verdict dated 2/25/10.
The Verdict entering judgment is dated February 25, 2010, and the docket sheet accompanying the certified record indicates that the Verdict was filed on that day. The document itself, however, bears a time stamp indicating that it was filed on March 1, 2010.
Tenant has filed a timely appeal, and complied with the lower court's order to file a Statement of Errors Complained of on Appeal. We are now asked to address the following five allegations of error:
In response to Tenant's Notice of Appeal, Landlord filed a Motion to Quash, arguing that Tenants had waived their appellate claims by failing to raise them in a post-trial motion pursuant to Pa.R.A.P. 227.1. The Superior Court agreed, and quashed the appeal on March 18, 2011. A subsequent Application for Reconsideration/Reargument was denied on May 23, 2011, but, following appeal to the Pennsylvania Supreme Court, the order of March 18, 2011 was vacated on November 1, 2012, and the matter was remanded to the Superior Court for consideration of the merits of Tenant's challenges to Judge Mahon's February 25, 2010 verdict.
1. Must [Landlord's] damages for future lost rent be reduced to present value where: (a) [Landlord] previously conceded that its lost rent damages needed to be reduced to present value and thus waived any claim that they should not be so reduced; (b) such reduction is the only result that is consistent with this Court's decision in the first appeal; and (c) reduction of [Landlord]'s future damages to present value is required in order to avoid conferring a windfall on [Landlord]?Tenants' brief at 2-3.
2. Must [Landlord]'s lost future rent damages be reduced to reflect mitigation for the second half of [Tenant]' twenty-year lease term where: (a) the trial court previously had found [Landlord]'s damages submission "highly unreliable" precisely because it assumed no mitigation for the second half of the lease; and (b) [Landlord] did not challenge that finding in either its post trial moving papers or in the first appeal?
3. Must the trial court's award of prejudgment interest to [Landlord] be reduced where: (a) in cases of anticipatory breach, prejudgment interest does not begin to run until the date on which performance would have been due; and (b) performance was not due until June 2005, more than three years after the date from which the trial court awarded prejudgment interest?
4. Must the trial court's award of $536,629 in reletting expenses to [Landlord] be eliminated where: (a) the trial court previously found that [Landlord]'s testimony regarding that $536,629 in reletting expenses was not credible; and (b) this Court affirmed that finding in the first appeal?
5. Must the trial court's award of prejudgment interest to [Landlord] on the entirety of its attorneys' fees and costs be eliminated where [Tenant] had no contractual obligation to pay [Landlord]'s attorneys' fees and costs prior to the trial court's entry of final judgment?
Generally speaking, our standard of review over a non-jury verdict requires us to determine whether the trial court committed an error of law and whether the trial court's findings of fact are supported by competent evidence of record. Rissi v. Cappella, 918 A.2d 131, 136 (Pa. Super. 2007). Our scope of review requires us to review the factual findings of the trial court with deference and to consider the evidence of record in a light most favorable to the verdict winner. Id.Trizechahn Gateway LLC v. Titus, 930 A.2d 524, 533 (Pa. Super. 2007) rev'd in part, 976 A.2d 474 (Pa. 2009).
We turn first to Tenant's allegations regarding reduction to present value, mitigation, and reletting expenses. In order to address these claims, it is necessary to set forth in greater detail the positions taken by the parties during this lengthy matter.
Throughout these proceedings, Landlord consistently suggested to the courts that there were three possible damage amounts to which it was entitled. It is undisputed that Landlord's primary damage theory requested damages of $5,511,219.00, representing lost profits from the sale of the shopping center. N.T. 11/10/05 at 52, 65, 82; Landlord's Proposed Findings of Fact filed 4/5/06 at 91; Landlord's Proposed Conclusions of Law filed 4/5/06 at 40, 49-50; Landlord's Response to Tenant's Motion to Strike New Damages Figures and Calculations filed 4/27/06 at 2, fn. 1; Landlord's Post Trial Motion filed 9/18/06 at 2. The evidence in support of this theory of damages was presented through Richard Marchitelli, Landlord's expert witness. Landlord held out Mr. Marchitelli's theory of damages to be "the most comprehensive and appropriate measure of damages," and this is the amount Landlord requested of Judge Mahon at both the trial and post trial levels. Landlord's Proposed Conclusions of Law filed 4/5/06 at 6, 40, 52; Landlord's Post Trial Motion filed 9/18/06 at 2.
Judge Mahon rejected this damage theory and the accompanying proposed damage amount at both the trial and post trial level, finding it "highly speculative" and "inappropriate" to support a damage award. Opinion filed 8/15/06 at 14; Post Trial Order filed 12/19/06 at 1, fn. 2.
As an alternative to its $5,511,219.00 damages request, Landlord proffered a lesser figure to which it alleged entitlement under Section 20.2.2 of the "Default & Remedies" section of the parties' Lease. Under this theory, Landlord asserted that Tenant's breach had deprived Landlord of the benefit of the bargain of the twenty year lease. Landlord's Proposed Conclusions of Law filed 4/5/06 at 40-41. Landlord further asserted that pursuant to Section 20.2.2, it properly mitigated its damages by securing replacement tenants, and had incurred reletting expenses in doing so. Id. at 41.
The Default & Remedies portion of the parties' Lease set forth actions/inactions that would constitute a "Tenant default," §§ 20.1.1-20.1.2, then provided that in the event of a Tenant default, Landlord had the right to terminate the lease, § 20.2.1, and/or lease the premises to another party (without terminating the Lease), § 20.2.2. Pertaining to this reletting, Section 20.2.2 read as follows:
20.2.2. Reletting: Without terminating this Lease, Landlord may re-enter and repossess the Leased Premises, or any part thereof, and lease them to any other Person upon such terms as are reasonable, for a term within or beyond the Term. Any such reletting shall be for the account of Tenant, and Tenant shall remain liable for the excess (if any) of: (a) all Rent which would be payable under this Lease by Tenant in the absence of such repossession; over (b) the proceeds, if any, of any reletting effected for the account of Tenant after deducting from such proceeds any Reletting Expenses ... No repossession of the Leased Premises or any part thereof pursuant to this section 20.2.2. shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such repossession, and Landlord may, at its option, sue for and collect all Rent and other charges due hereunder at any time when such charges accrue.Lease Agreement, "Default & Remedies" § 20.2.2.
Landlord thus requested at trial that Judge Mahon award Section 20.2.2 damages calculated by:
taking nine (9) months of rent [Tenant] would have already paid ($531,534)[] adding the present value of the remainder of [Tenant's] Lease ($6,616,978), subtracting the present value of the Michael's lease ($1,270.409), subtracting the present value of the PetsMart lease ($1,667,382) and finally, adding in the reletting expenses ($536,629), resulting in a total damages figure of $4,746,850.Id. at 42 (underline in original).
Landlord asserted that had Tenant not breached the Lease, Tenant would have taken possession of the space on December 1, 2004, and after the benefit of three months free rent, would have begun paying rent to Landlord on March 1, 2005. Landlord's Proposed Conclusions of Law filed 4/5/06 at 41. Thus, by the time the shopping center was sold at the end of 2005, Tenant would have paid $531,534.00 in rent to Landlord. Id. at 42. Landlord explained that "this past due rent does not get adjusted to present value, just added into the final calculation of damages." Id. at 42.
In suggesting Section 20.2.2 damages of $4,746,850.00, Landlord insisted that despite its best efforts, the replacement tenants only signed ten year leases, and Landlord could not assume they would renew at the end of the ten year period. Landlord's Proposed Conclusions of Law filed 4/5/06 at 42. Thus, the $4,746,850.00 figure did not include mitigation for the second ten year term of Tenant's twenty year lease period.
Although disputing that it had an ongoing duty to mitigate during the second ten year period, Landlord proposed a second Section 20.2.2 damage figure in response to testimony from Tenant's expert witness, whereby Landlord suggested that if it was determined that mitigation was required for the second ten year period, damages should be calculated as follows:
adding the nine (9) months of [Tenant's] rent, $531,534, with the present value of [Tenant's] Lease ($6,616,978), subtracting the present value of the PetsMart ($2,193,068) and Michael's ($1,639,387) leases - both of which assume a fifty percent (50%) renewal for the remaining term of [Tenant's] Lease, and adding in construction costs ($536,629) for a total of $3,852,186.Id. at 44 (underline in original).
It is thus apparent that Landlord conceded that any Section 20.2.2 damages awarded to it would be reduced to present value. This position is consistent with an exchange that occurred during the presentation of the testimony of Marc Newman in support of Section 20.2.2 damages.
Were the Section 20.2.2 amounts not reduced to present value, the damages requested via Landlord's alternate damage theory would have exceeded the $5,511,219.00 figure sought by its primary damage theory -a financially illogical and improbable scenario.
In rebutting the damages calculations made by Mr. Marchitelli and Mr. Newman, Tenant had introduced the testimony and report of Michael Axler. Pertinent to the appeal currently before us, Mr. Axler opined that because Landlord had an ongoing obligation to mitigate after the expiration of the replacement tenants' ten year leases, Mr. Newman erroneously failed to account for rent due during the second ten years of the twenty year term of Tenant's lease. N.T. 1/19/05 at 63. Additionally, Mr. Axler suggested that the damage calculations performed by Mr. Newman should be reduced to present value, resulting in damages of $2,947,698.00 (Tenant's rent over 20 years, minus rent from replacement tenants over 20 years, plus construction costs). Id. at 68-69. Exhibit D-100 (Mr. Axler's "Response to Newman Alternate Damages Claim" (in which Mr. Axler used a rate of 9%)). When Tenant sought to introduce Exhibit D-100, Landlord objected and the following discussion over the propriety of reducing the damages to present value occurred:
[Landlord]: My objection is to any testimony or any of these calculations regarding the first ten years of [Tenant's] lease, the PetsMart lease, and the Michael's lease as indicated in this document.N.T. 1/19/06 at 64-65 (emphasis added). After brief additional comments, Landlord clarified that it objected to "the introduction of this testimony as to present value." Id. at 65 (emphasis added). Tenant then complained "[y]our Honor, she just changed her objection. A minute ago she said she was objecting to the rate, not the concept of discount." Id. (emphasis added). The following exchange then occurred:
The Court: And you're offering the first ten years for what purpose?
[Tenant]: Well, the only difference in the first ten years presented by Marc Newman and Mr. Axler is the discounted present value and this is a portion of his opinion.
The Court: And do you object to that?
[Landlord]: Only to the extent that he offers an opinion as to what that percentage interest was to use for present value, the numbers.
The Court: Well, you can't introduce - it doesn't make a difference what her objection is, it's to the introduction of the present value based upon percentage calculation or something else. Is that the basis?Id. at 65-67. It is clear from this exchange that Landlord did not object at trial to the reduction to present value. In addition, when Mr. Axler was later questioned about the present value rate used in his calculations on cross examination, re-direct examination, and re-cross examination, Landlord did not even renew its objection to that rate, much less contest that the underlying reduction to present value of the Section 20.2.2 damages was to occur. N.T. 1/19/06 at 137, 139, 145, 147.
[Landlord]: That's the basis, your Honor.
[Tenant]: I think, your Honor, if I understand [Landlord] correctly, what he is saying, [Landlord] agree[s] there should be discount for present value, but dispute[s] the rate. I would submit that's inappropriate [sic] for cross-examination of Mr. Axler, not admissibility issue.
The Court: Is that your issue?
[Landlord]: Your Honor, the issue is two-fold. That he is offering expert testimony as to a factual matter that has not been included in his report, and -
The Court: One to ten years, one to ten are not going to be considered by me other than on the issue of present value, one to ten, ten years on the leases calculation of the figures introduced, if I allow it to be introduced for that purpose.
[Landlord]: Objection, your Honor.
The Court: What is your objection now?
...
The Court: You're still asking that it be exclude because of the rate Mr. Axler has used for purpose of determining present value?
[Landlord]: Yes, your Honor. The rate Mr. Axler has used, in and of itself, is an expert opinion as to what that rate should be. And this is a factual matter. It's a matter for the Court to decide and it's a matter that [Tenant] [was] on notice of that this testimony would be offered.
The Court: Are you saying I'm supposed to make a determination as to what the present value is?
[Landlord]: It is within the Court's purview your Honor. Yes, you can, but there was also factual evidence as to what rate was to be used.
Further, Mr. Marchitelli was recalled to rebut Mr. Axler's testimony and Exhibit D-100, containing Mr. Axler's present value calculation of Mr. Newman's alternate damage figures. N.T. 1/20/06. Landlord's Exhibit P-434 was introduced into evidence, correcting alleged errors in Mr. Axler's calculations and providing Mr. Marchitelli's present value calculation of Mr. Newman's alternate damage figures resulting in total damages of $3,852,186.00. Id. at 68-72, 92. In so doing, Mr. Marchitelli used the same rate as had Mr. Axler to discount the figures to present value. Id. at 71.
Landlord continued to request Section 20.2.2 damages reduced to present value at the post trial level, averring that Landlord "[c]ould also be made whole by calculating damages based upon lost rental income as specifically set forth in Section 20.2.2." Landlord's Post Trial Motion filed 9/18/06 at 8; Landlord's Memorandum of Law in Support of Post Trial Motion filed 11/8/06 at 18-19, 32. In its post trial request that the damage award be modified, Landlord stated:
[Judge Mahon] actually found Marc Newman's calculation of damages in years 1-10 to be reliable. Thus, there is no question that [Landlord] is at least entitled to recover damages for present value of lost rent through the first 10 years and 9 months, ($2,713,739.00 as set forth above). [Landlord] should have, at a minimum been awarded the lost rental income for the first 10 years and nine months to which there is no dispute and no speculation.Landlord's Memorandum of Law in Support of Post Trial Motion filed 11/8/06 at 24. Thus, Landlord's Post Trial Motion preserved the request for a Section 20.2.2 damage figure reduced to present value.
While there was no legal obligation for [Landlord] to find a replacement tenant for the same lease length, if the Court determined some rent must be attribute to the last 9 years and 3 months, sufficient evidence and calculation to find such, has been presented to the Court. In fact, both [Tenant's] "expert," Axler and [Landlord's] expert, Marchitelli, agreed that a 50% renewal probability is a reasonable assumption and methodology for calculating the remaining anticipated rent. While both experts concur that a 50% renewal probability is reasonable, Axler's calculations were admittedly incomplete. Marchitelli adopted and modified Axler's calculations using standard real estate assumptions, which were supported by the testimony of March Newman and uncontested. Ultimately, Marchitelli calculated the present value of [Landlord's] damages, per the Remedies section of the Lease, to be $3,852,186.00.
Landlord argued on the previous direct appeal to the Superior Court that it had presented "two alternate theories of damages, either of which would have acted to award [Landlord] its expectation damages," and that the damages awarded by Judge Mahon were "insufficient in that they failed to award [Landlord] its expectation damages, necessary to make [Landlord] whole. Landlord's Pa.R.A.P. 1925(b) Statement of Matters Complained of on Appeal filed 1/31/07. As it had up to that point, Landlord structured its appellate brief to primarily argue in favor or damages based on the diminished sale price of the shopping center allegedly attributable to Tenant's breach, and only secondarily requested Section 20.2.2 damages. Landlord's Pa.R.A.P. 1925(b) Statement of Matters Complained of on Appeal filed 1/31/07 at 21, 24.
Thus, we find it abundantly clear from the contents of the certified record that neither the trial court nor the prior panel of the Superior Court was asked to award Section 20.2.2 damages not reduced to present value. Quite to the contrary, Landlord's damages requests were figures consistently so reduced. While the parties argued over numerous other aspects of this case, the propriety of reduction to present value was simply not made an issue. Unsurprisingly, the April 25, 2008 Memorandum of the Superior Court is thus silent on the topic, and we discern nothing in that Memorandum which would permit Landlord to abandon on remand its consistently held position in this regard, and argue instead that the trial court must award Section 20.2.2 damages not reduced to present value. Our exhaustive review of the record in this case compels the conclusion that it does not support Judge Mahon's failure to reduce Landlord's damages to present value. Therefore, we find it necessary to vacate the award of damages and remand the matter for calculation of damages reduced to present value.
On remand, such damages must also reflect Landlord's duty to mitigate for the second half of the twenty year lease term. Judge Mahon's August 15, 2006 Opinion faulted Landlord's 20.2.2 damage evidence for failing to account for the second ten year period. In challenging the judge's damage award via post trial motion, Landlord conceded the necessity of mitigation for the second ten year period, and requested $3,852,186.00 in Section 20.2.2 damages, reflecting the fifty percent (50%) renewal rate that both parties' experts agreed was "reasonable." Landlord's Memorandum of Law in Support of Post Trial Motion filed 11/8/06 at 24, 32. In arguing to the prior panel of this Court that the evidence supported Section 20.2.2. damages, Landlord noted that "both [Landlord] and [Tenant] presented testimony through their experts, who both agreed that it would be reasonable to assume a 50% renewal probability that the substitute tenants would exercise during [the second ten year period]." Landlord's brief filed 6/26/07 at 29. In remanding the matter to Judge Mahon for enforcement of the measure of damages in Section 20.2.2, the prior Panel of this Court did not find fault in the judge's conclusion that mitigation was required for the second ten year period, and it is unclear to this Court why the Judge's January 15, 2010 Opinion did not reflect his prior determination regarding the necessity for mitigation during the second ten year period.
Finally, with regard to reletting expenses, Tenant asserts that Judge Mahon "erred in awarding $534,629 in reletting expenses when it had previously found that figure not credible and [the Superior Court] affirmed that finding on appeal." Tenant's brief at 40. Judge Mahon's December 19, 2006 order acknowledged that Marc Newman testified that Landlord incurred $536,629.00 in additional construction costs to accommodate PetsMart and Michaels, but the judge also noted that Richard Marchitelli had testified, to the contrary, that Landlord saved $505,821.00 in construction costs when building for the replacement tenants. Order filed 12/19/06 at 1, fn. 2. Faced with this conflicting evidence from Landlord, Judge Mahon specifically credited Mr. Marchitelli's testimony and concluded that "[Landlord] failed to prove by a preponderance of the evidence that it is entitled to $536,629.00 in reletting expenses." Id.; Opinion filed 5/8/07 at 20. Such a credibility determination was, undisputedly, a matter for the factfinder, who is free to believe any portion or none of the evidence presented. Spang & Co. v. USX Corp., 599 A.2d 978, 983 (Pa. Super. 1991) (citing Aletto v. Aletto, 537 A.2d 1383 (1988)).
On appeal, the prior panel of this Court did not disturb Judge Mahon's conclusion regarding reletting expenses, explaining that "[s]ince the trial court's determination was amply supported in the record, we decline to disturb the specific finding, and need only note that any cost savings associated with [Tenant's] breach must be deducted from the trial court's assessment of damages." Memorandum filed 4/25/08 at 19, fn. 9.
On remand, Judge Mahon confirmed that he "did not find the testimony offered by Marc Newman creditable on the issue of additional construction costs." Opinion filed 1/15/10 at 2, fn. 4. In apparent conflict with this statement, however, the judge then subtracted the $505,821.00 construction savings credibly testified to by Mr. Marchitelli, from the $536,629.00 construction costs presented through Mr. Newman's discredited testimony. Id.
However, since Judge Mahon discredited Mr. Newman's testimony, and the Superior Court found that such determination was supported by the record, the $536,629.00 figure is a number irrelevant to the question of Landlord's reletting expenses, and it was error for Judge Mahon to insert it into his calculations. In light of Judge Mahon's previous finding, affirmed by the prior panel of this Court, that Landlord presented credible testimony that it enjoyed a savings of $505,821.00 in construction costs as the result of Tenant's breach, as opposed to incurring $536,629.00 in additional construction costs, the $505,821.00 saved must be subtracted from Landlord's reletting expenses, and the $536,629.00 number testified to by Mr. Newman plays no part in their calculation.
In addition to Tenant's claims regarding reduction to present value, mitigation and reletting expenses, Tenant also challenges the interest awarded on Landlord's damages. Landlord initially requested of the trial court that it award damages, as discussed above, "together with interest at the Default Rate as provided in Paragraph 20.4 of the Lease and Paragraph 1.15 of the Lease, and Costs." Landlord's Proposed Conclusions of Law and Discussion filed 4/5/06 at 52. Section 20.4 of the Lease reads as follows:
Landlord indicated it would submit a calculation of Default Rate interest "should the Court see fit to enter damages in favor of [Landlord] on [Landlord's] underlying claims." Landlord's Proposed Conclusions of Law and Discussion filed 4/5/06 at 52.
20.4 Expenses. At any time following a default, in the event that the Landlord commences suit for the repossession of the Lease Premises, for the recovery of Rent or any other amount due under the provision of this Lease, or because of the breach of any other covenant herein contained on the part of the Tenant to be kept or performed, and a breach shall be established, the Tenant shall pay to the Landlord all expenses incurred in connection therewith, including reasonable attorneys' fees and costs. If the Tenant defaults under this Lease, all sums of money owed to the Landlord under this Lease shall bear interest at the Default Rate until the sums are paid to the Landlord.Lease Section 20.4. Section 1.15 defines "Default Rate" as the "lesser of: (a) the Prime Rate (as hereinafter defined) plus two percent (2%) per annum; or (b) the highest interest rate permitted by Applicable Law." Lease Section 1.15. Tenant disputed Landlord's damage claim, but did not specifically challenge the applicability of Section 20.4 if the trial court concluded that interest was due. Tenant's Proposed Findings of Fact and Conclusions of Law filed 4/5/06. As noted above, Judge Mahon's initial damage award did not include interest. Verdict and Opinion filed 8/15/06 at 1, 14, Verdict filed 9/6/06 at 1. When the parties filed their subsequent post trial motions, the issue of interest was not raised, nor was it addressed during the prior direct appeal to the Superior Court.
Section 1.44 of the Lease defines Prime Rate as "the published prime rate as reported in the Money Rates section of the Wall Street Journal (or its successor)."
On remand from the Superior Court, however, Landlord asked Judge Mahon to award damages, and "[i]nterest as permitted in the Lease" from "February 13, 2002 at a rate of prime plus 2%." Landlord's Brief in Support of the Proper Calculation of Damages Pursuant to the Memorandum of the Superior Court filed 11/5/08 at 2, 17. The amount of interest requested was $5,657,613.00. Landlord's Response to [Tenant's] Memorandum Regarding Calculation of Damages of Remand filed 12/2/08 at 14.
Although Landlord specifically requested interest at the rate set forth in the parties' contract, it also argued, alternatively, that it was entitled to prejudgment interest awarded as damages. Landlord's Brief in Support of the Proper Calculation of Damages Pursuant to the Memorandum of the Superior Court filed 11/5/08 at 8-10. "[A] party may recover contractual interest or prejudgment interest, but not both for the same time period. TruServ Corp. v. Morgan's Tool & Supply Co., Inc., 39 A.3d 253, 265 fn. 14 (Pa. 2012) (citing Comment (a) to Section 354 of the Restatement (Second) of Contracts). Expounding on contractual interest as compared to prejudgment interest, the Pennsylvania Supreme Court has explained:
[T]here is a distinction between "contractual interest" and "prejudgment interest."8 Where a contract provides for the payment of money and one party breaches the contract by failing to pay, the nonbreaching party may recover interest on the amount owed under the contract in one of two ways.
First, "[i]nterest may be reserved by the terms of the contract between the parties and is then called conventional or contractual interest." See 25 Williston on Contracts § 66:109 (4th ed.) (emphasis added).
Alternatively, where the parties to a contract have not specifically addressed the payment of interest in the terms of the contract, the nonbreaching party may recover, as damages, interest on the amount due under the contract. See id. (citing Restatement (Second) of Contracts § 354). This Court has referred to interest awarded as damages in such circumstances as prejudgment interest. See Fernandez v. Levin, 519 Pa. 375, 379, 548 A.2d 1191, 1193 (1988).
8 See, e.g., 25 C.J.S. Damages § 83 ("There is a distinction between interest awarded by virtue of the terms of a contract and interest awarded by way of damages for breach of the contract, although the recovery in both cases is frequently spoken of as a recovery of interest.").
The Prime Rate used in this calculation is not clear from the record before us.
In response to Landlord's request, Tenant conceded that Landlord "may recover interest," but insisted that such interest did not begin to accrue until June 25, 2005, the date Tenant would have begun to pay rent had it not breached the Lease. Tenant's Memorandum Regarding Outstanding Issues on Remand filed 11/6/08 at 11. To support its position, Tenant relied on the wording of Section 20.4, that "all sums of money owed to Landlord under this Lease shall bear interest as the Default Rate until the sums are paid to the Landlord." Id. (emphasis in Memorandum). Tenant also pointed to Section 4.3 of the Lease, which directed that rental payments must be paid within fifteen days of the due date, and if a payment was not paid, it bear interest "from its due date at the Default Rate ..." Id. (emphasis in Memorandum).
Although Tenant argued that Landlord's right to interest was controlled by the Lease itself, the single case cited by Tenant was Fernandez, supra, a non-contract case pertaining to prejudgment interest awarded as damages, not contractual interest. Tenant's Memorandum Regarding Outstanding Issues on Remand filed 11/6/08 at 12 (citing Fernandez, supra (an action in assumpsit brought over a bounced check)).
After considering the parties' positions, Judge Mahon awarded Landlord contractual interest of $6,279,734.26 "from the date of the anticipatory breach of the contract on February 13, 2002 pursuant to §§20.4 and 1.15 of the lease." Opinion filed 1/15/10 at 3; Verdict dated 2/25/10.
On appeal of Judge Mahon's award, Tenant now insists that "the prejudgment interest award should be vacated and the trial court should be directed to recalculate the interest award." Tenant's brief at 40. Specifically, Tenant asks:
Must the trial court's award of prejudgment interest be reduced where: (a) in cases of anticipatory breach, prejudgment interest does not begin to run until the date on which performance would have been due; and (b) performance was not due until June 2005, more than three years after the date from which the trial court awarded prejudgment interest.Tenant's brief at 2.
Tenant's argument on appeal mirrors that presented to Judge Mahon in response to Landlord's request for interest accruing as of February 13, 2002. Tenant initially asserts that Section 4.3 of the Lease "unambiguously provides that [Tenant] cannot be charged prejudgment interest for failing to make rental payments that had not yet come due." Tenant's brief at 38. As we noted, above, however, Judge Mahon did not award "default interest" under Section 4.3 for rent "unpaid within fifteen days after its due date." Section 4.3 is inapplicable here because this is not a case where Tenant took up occupancy and only then began to fail to pay its rental obligation. Instead, as Judge Mahon clearly determined and the prior panel of this Court reiterated, Tenant's actions in refusing to occupy the property in the first place amounted to a total anticipatory breach of the Lease, creating at the time of such breach the obligation to pay Landlord all rent owed.
Appearing under the Heading RENT, Section 4.3 pertains to default interest, and states in full:
If any Rent is not paid within fifteen days after its due date, then, in consideration of Landlord's additional expense caused by such failure to pay such sums, such arrearage shall bear interest from its due date at the Default Rate until paid and such interest shall be payable without demand simultaneously with the Rent arrearage.Lease Section 4.3 Default Interest.
Although there has obviously been disagreement over whether this amount should be reduced the present value, Tenant does not argue that the rental obligation created by its breach can be fulfilled on the same month by month basis that would have been applicable had there been no breach.
Tenant's argument also cites to cases pertaining to prejudgment interest, which we find inapplicable to Judge Mahon's determination that Landlord is entitled to contractual interest under Sections 20.4 and 1.15. Id. at 38-39 (citing Fernandez, supra; Somerset Community Hospital v. Allan B. Mitchell & Associates, Inc., 685 A.2d 141, 148 (1996)).
We find similarly unavailing Tenant's citation to Section 354 of the Restatement (Second) of Contracts and Section 66.112 of Williston on Contracts. Tenant's brief at 39-40. As Comment a. to Section 354 clearly states, it does not deal with "the injured party's right to interest under the terms of the contract. If the parties have agreed on the payment of interest, it is payable not as damages but pursuant to a contract duty that is enforceable as is any other such duty, subject to legal restrictions on the rate of interest." Restatement (Second) of Contracts § 354 (1981) Comment a. Judge Mahon's January 15, 2010 Opinion clearly awarded contractual interest under Section 20.4 of the Lease, thus Section 354 is inapplicable to the circumstances before us. As Section 66.112 of Williston on Contracts also pertains to interest awarded as damages, it is also irrelevant to the propriety of Judge Mahon's award of contractual interest.
Thus, we find that Tenant has failed to persuade us that the award of interest from February 13, 2012 on Landlord's damages requires reversal. Our review of the circumstances before us leads us to conclude the opposite. Judge Mahon determined, and the prior panel of this Court affirmed, that Tenant's February 13, 2002 refusal to proceed as contracted under the Lease resulted in a total anticipatory breach of that Lease, creating in Tenant an obligation as of the time of the breach, to pay Landlord all rent. We find that pursuant to Section 20.4 of the Lease, interest at the Default Rate accompanied that obligation. Judge Mahon committed no error in awarding interest on Landlord's damages as of February 13, 2002. We must remand for the recalculation of such interest, however, in light of our determination that the damages must be reduced to present value.
This determination is unaltered by Tenant's final, bald citation to Trizechan Gateway LLC v. Titus, 930 A.2d 524, 543-544 (Pa. Super. 2007), reversed in part on other grounds, 601 Pa. 637, 976 A.2d 474 (2009)). Tenant's brief at 40. Instead, Trizechan appears to support Judge Mahon's determination. Therein, a commercial landlord and tenant entered into a ten year lease from October 1, 1995 until June 30, 2005. Trizechan, 930 A.2d at 529. The lease contained a remedies provision similar to Section 20.2.2 of the parties Lease, but, unlike their Lease, did not allow the landlord to accelerate rental payments. Id. at 529-530. The tenant began occupancy, but then abandoned the premises in 1999, and paid no rent from February 1, 2000. Id. The trial court awarded damages to Landlord, and awarded interest to be calculated from February 1, 2000 - the date tenant became past due on it rental obligation. Id at 543. On appeal of the trial court's award, including interest, the Superior Court was asked to determine whether the Landlord was entitled to recover from the tenant prejudgment interest on an entire award of unpaid rent from the date of the tenant's initial breach, despite the absence of an acceleration clause in the lease. Id. at 532. The Superior Court found that the landlord was not entitled to prejudgment interest on the entire amount of rent due retroactively from the date the tenant defaulted, since the master lease did not contain an acceleration clause that allowed the landlord to call the balance due under the lease the moment tenant defaulted. Id. at 543-544. In the matter at hand, however, it has been determined that under the Lease Tenant's anticipatory breach allowed Landlord to call the balance due on Tenant's default.
20. Landlord received a copy of Tenant's letter, which also indicated to Judge Mahon that Tenant did not require an evidentiary hearing "regarding [Landlord's] reasonable attorneys' fees or expenses, or [Landlord's] calculations of interest thereon," but did request the opportunity to submit a memorandum of law on the issue of whether "prejudgment interest can be charged for fees and expenses." Tenant's letter dated 2/17/10. We note that the letter also references a February 4, 2010 amendment to Judge Mahon's January 15, 2010 Opinion, but no such amendment appears in the certified record. Id.
In addition to challenging Judge Mahon's award of interest on Landlord's damages, Tenant lastly asserts that Judge Mahon erred in awarding interest on Landlord's attorneys' fees and costs. Judge Mahon's January 15, 2010 Opinion directed the following with regard to counsel fees:
[B]oth parties are seeking counsel fees pursuant to the terms of the lease agreement. [Landlord] is entitled to reasonable counsel fees and expenses pursuant to § 20.4 and also as the prevailing party under § 24.10. Counsel for the parties shall contact this Court within ten (10) days of the entry of this Opinion about the need for an evidentiary hearing to determine [Landlord's] expenses and reasonable counsel fees.Opinion filed 1/15/10 at 3.
This Opinion shall not be the final award of damages. The Court will issue another Order to include the total amount of damages awarded, plus interest, counsel fees and expenses.
In accordance with this Opinion, Landlord provided Tenant with calculations setting forth attorneys' fees, costs, and expenses (from August 31, 2003 through February 22, 2010), plus interest, totaling $1,684,189.34. The affidavits presented by Landlord on this issue set forth fees from August 31, 2003 and include $412,727.28 in interest at a rate of 6%. Affidavit filed 2/19/10, Exhibit C. Tenant informed Judge Mahon that it did not contest Landlord's "claimed fees and expenses themselves," but "reserve[d] the right to challenge whether pre-judgment interest can be charged on fees and expenses," and the right to "challenge any award of fees and expenses to [Landlord], and any determination that [Landlord] is the prevailing party, following the resolution of [Tenant's] motion for reconsideration and any appeals." Tenant's Letter to Judge Mahon, dated 2/17/10, attached as Exhibit B to Landlord Affidavit. The referenced Motion for Reconsideration and accompanying Memorandum of Law raised two issues inapplicable to the question currently before us, but the Memorandum of Law also contained a footnote stating, in pertinent part:
In an abundance of caution, [Tenant] expressly preserves and does not waive or intend to waive any appeal issues not raised herein, including without limitation, its appeal of ...(2) the Court's award of interest from the date of the anticipatory breach (February 2002), rather than from the date on which rent would have first become due, (June 2005); (3) the Court's future calculations and awards of interest and attorney's fees; and (4) the Court's determination of "prevailing party" under the lease, pending any appeal of the aforementioned issues. It is well settled under Pennsylvania law that an appellant does not waive appeal issues by not raising them in a motion for reconsideration.Memorandum of Law to Motion for Reconsideration filed 2/17/10 at 1, fn. 1 (citations omitted).
Landlord then sent Judge Mahon a letter asking him to enter a final order and expressing Landlord's belief that Tenant should not be permitted to submit a memorandum of law regarding whether prejudgment interest can be charged on fees and expenses in light of the "unambiguous" language set forth in Section 20.4 of the Lease, which provides for "interest at the default rate following a default, for 'all expenses incurred in connection therewith including reasonable attorneys' fees and costs.'" Letter dated 2/19/10, filed 3/1/10. No further correspondence or motions from either party appear in the certified record.
Tenant received a copy of Landlord's letter.
On February 25, 2010, Judge Mahon denied Tenant's Motion for Reconsideration and issued the verdict currently under appeal, including "$1,684,189.34 in attorney fees, costs and expenses with interest." Verdict dated 2/25/10. In rendering this award, the judge specifically "reserve[d] determination of further attorney fees, costs, expenses and interest until the appellate process has concluded." Id.
In full, the verdict stated:
VERDICTVerdict dated 2/25/10, filed 3/1/10.
AND NOW, this 25th day of February, 2010, pursuant to the Opinion of this Court dated January 15, 2010, Affidavits submitted by [Landlord], and correspondence from [Tenant] dated February 17, 2010, it is hereby ORDERED and DECREED that judgment in entered in favor of [Landlord] in the amount of $18,489,221.601 with post-judgment interest to accrue at the rate of Prime plus two percent (2%).
1 The Verdict consists of $10,494,490.00 expectation damages, $30,808.00 reletting expenses, $6,279,734.26 interest, $1,684,189.34 in attorney fees, costs and expenses with interest. The Court reserves determination of further attorney fees, costs, expenses and interest until the appellate process has concluded. In the event that neither party appeals this Verdict, the Court will address these issues thirty (30) days from the entry of this Verdict. The Trial Court considers this Verdict to be appealable, and would otherwise certify the verdict for appellate review.
Tenant now asks on appeal "[m]ust the trial court's award of prejudgment interest to [Landlord] on the entirety of it attorneys' fees and costs be eliminated where [Tenant] had no contractual obligation to pay [Landlord's] attorneys' fees and costs prior to the trial court's entry of final judgment?" Tenant's brief at 3. Tenant argues that it had "no contractual obligation to pay [Landlord's] attorneys' fees and costs at the time they were being incurred," and that such contractual obligation did not arise until after judgment was entered. Id. at 43 (citing Reproduced Record at 76a, 83a). It appears that Tenant is relying on Sections 20.4 and 24.10 of the Lease, as those are the only relevant portions of the Lease appearing on the pages of the Reproduced Record cited by Tenant. As we noted above, Section 20.4 states:
This claim was included in Tenant's Court ordered Rule 1925(b) Statement.
20.4 Expenses. At any time following a default, in the event that the Landlord commences suit for the repossession of the Lease Premises, for the recovery of Rent or any other amount due under the provision of this Lease, or because of the breach of any other covenant herein contained on the part of the Tenant to be kept or performed, and a breach shall be established, the Tenant shall pay to the Landlord all expenses incurred in connection therewith, including reasonable attorneys' fees and costs. If the Tenant defaults under this Lease, all sums of money owed to the Landlord under this Lease shall bear interest at the Default Rate until the sums are paid to the Landlord.Lease Section 20.4 (emphasis added). Section 24.10 states, in pertinent part:
24.10 Attorneys' Fees. In any litigation between the parties regarding this Lease, the losing party shall pay to the prevailing party all reasonable expenses and court costs including attorneys' fees incurred by the prevailing party. A party shall be considered the prevailing party if ... it initiated the litigation and substantially obtains the relief it sought, either through a judgment or the losing party's voluntary action before arbitration (after it is scheduled), trial or judgment.Lease Section 24.10.
Pertinent to Section 24.10 of the Lease, we note that Tenant's brief asserts in a footnote that it, not Landlord, might be the prevailing party for purposes of establishing an entitlement to fees and costs, and thus "[i]t is not clear ... that [Landlord] is entitled to recover its fees and costs in the first place." Tenant's brief at 43, fn. 16. The fees and costs issue, as preserved by Tenant's Rule 1925(b) Statement, however, was that Judge Mahon erred in awarding [Landlord] prejudgment interest on its attorneys' fees, costs and expenses, where [Landlord's] right to those sums did not accrue until the Court entered a final judgment establishing [Landlord's] prevailing party status." Pa.R.A.P. 1925(b) Statement at 3. Additionally, the Statement of Questions Involved contained in Tenant's appellate brief words the question similarly: "Must the trial court's award of prejudgment interest to [Landlord] on the entirety of its attorneys' fees and costs be eliminated where [Tenant] had no contractual obligation to pay [Landlord's] attorneys' fees and costs prior to the trial court's entry of final judgment." As such, we will not address Tenant's allegation regarding "prevailing party." Pa.R.A.P. 1925(b)(4)(vii) ("Issues not included in the Statement and/or not raised in accordance with the provisions of this paragraph (b)(4) are waived."); Pa.R.A.P. 2116 (a) ("No question will be considered unless it is stated in the statement of questions involved or is fairly suggested thereby.").
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Tenant's argument in support of its challenge to the interest awarded on the attorneys' fees mirrors its position with regard to the interest awarded on the damage award. For the reasons expressed above, we find Tenant is not entitled to relief. Through its refusal to comply with its obligations under the Lease, Tenant committed an anticipatory total breach of the Lease, triggering at the time of the breach, Landlord's right to collect damages and expenses, including attorneys' fees, plus interest.
For the foregoing reasons, we vacate the Verdict of February 25, 2010, and remand this matter for recalculation of damages and interest in accordance with this memorandum.
Verdict Vacated. Matter Remanded. Jurisdiction Relinquished.
DONOHUE, J. FILES A CONCURRING DISSENTING OPINION. Judgment Entered. ______________________
Prothonotary
TruServ Corp. v. Morgan's Tool & Supply Co., Inc., 39 A.3d 253, 260-61 (Pa. 2012).
The statutory prejudgment interest rate in Pennsylvania is 6%. TruServ Corp. v. Morgan's Tool & Supply Co., Inc., 39 A.3d 253, 261 (Pa. 2012). See also Daset Min. Corp. v. Indus. Fuels Corp., 473 A.2d 584, 597 (Pa. Super. 1984) ("[T]he law in Pennsylvania, at this time, does not permit an award of prejudgment interest in an amount greater than six percent.").