Opinion
Civil No. 00-506-AS
July 2, 2001
OPINION
Presently before the court is plaintiff H. Naito Corporation's ("Plaintiff") second motion for summary judgment. On April 16, 2001, this court granted Plaintiff's first motion for summary judgment and found that defendants Quest Entertainment Ventures, L.P., Q.E.V., Inc., and Fleming Trust ("Defendants") breached a lease entered into between the parties. This second motion for summary judgment asks the court to determine the amount of damages due Plaintiff as a result of Defendants' breach.
BACKGROUND
On April 14, 1999, the parties executed an agreement allowing defendant to lease the Erickson Saloon (the "Saloon"), which is owned by Plaintiff, for an initial term of five years ("Lease"). The term of the Lease was to commence on October 1, 1999, and the monthly rent was $17,472. In addition to the Saloon, Quest committed to leasing space for valet parking at a monthly rate of $1,200. The Lease contained a late charge payment of 10% of the overdue amount if rent was not received by Plaintiff within five days of the date it was due. Quest never took possession of the Saloon and paid Plaintiff only $17,472 as a security deposit. Plaintiff located a new tenant in late 2000 and entered into a lease agreement with payment of rent to commence on May 1, 2001.
Plaintiff seeks judgment in the amount of $372,772.80. This sum consists of unpaid rent, for both the saloon and the valet parking, from October 2000 through April 2000 and late fees equal to $1,867.20 for each of the 19 months Defendants were late in paying rent less the security deposit of $17,472. Defendants contend that Plaintiff failed to mitigate its damages and that the late payment fee is not enforceable under Oregon law.
LEGAL STANDARD
Rule 56 of the Federal Rules of Civil Procedure allows the granting of summary judgment:
if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). "[T]he requirement is that there be no genuine issue of material fact." Anthes v. Transworld Systems, Inc., 765 F. Supp. 162, 165 (Del. 1991) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)) (emphasis in original).
The movant has the initial burden of establishing that no genuine issue of material fact exists or that a material fact essential to the nonmovant's claim is absent. Celotex v. Catrett, 477 U.S. 317, 322-24 (1986). Once the movant has met its burden, the onus is on the nonmovant to establish that there is a genuine issue of material fact. Id. at 324. In order to meet this burden, the nonmovant "may not rest upon the mere allegations or denials of [its] pleadings," but must instead "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see Celotex, 477 U.S. at 324.
An issue of fact is material if, under the substantive law of the case, resolution of the factual dispute could affect the outcome of the case. Anderson, 477 U.S. at 248. Factual disputes are genuine if they "properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250. On the other hand, if after the court has drawn all reasonable inferences in favor of the nonmoving party, "the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50 (citations omitted).
DISCUSSION
A plaintiff has the duty to exercise reasonable efforts to mitigate its damages by attempting to lease the premises to others after defendant has defaulted on the existing lease. Kulm v. Coast-to-Coast Stores Central Organization, Inc., 248 Or. 436, 440 (1967). In addition, in an action to recover damages for breach of lease, the plaintiff has the burden of establishing "that it made a reasonable effort to find a suitable tenant and, if there were tenants available to lease the space, it has the burden to show that they were not suitable and why they were not." Portland General Electric v. Hershiser, Mitchell, Mowery Davis, 86 Or. App. 40, 44 (1987). A plaintiff is not required to substantially alter the terms of the pre-existing lease to entice a new tenant. It must merely advertise and offer the premises to those likely to be interested in the premises, based on a prior or logical use, for its current fair market rental value. Foggia v. Dix, 265 Or. 315 (1973).
Defendants argue that Plaintiff had a suitable tenant, Quest, willing to rent the Saloon as of May 1, 2000, at the terms set forth in the Lease. It is evident from a memo dated October 26, 1999, from Scott Watson to Sam and Verne Naito that Quest had informed Plaintiff that they were interested in leasing the Saloon effective May 1, 2000, once they had a chance to solve their problems related to obtaining a liquor license from the Oregon Liquor Control Commission. Quest offered to assume all of the "triple net" charges on the Saloon and to pay all commissions due on the lease transaction. Scott Watson indicated that Plaintiff could push the starting date back to February 1, 2000, without diminishing their financial position. Then, in a letter dated January 11, 2000, from Quest to Plaintiff, Quest advised Plaintiff that "the financing arm of the venture that we understood was in place is in fact not in place." There is no evidence that Quest was ever able to resolve the problem or obtain new venture capital.
While Quest may have been willing to rent the Saloon effective May 1, 2000, the information available to Plaintiff in January 2000 was that Quest did not have the financing necessary to qualify for the building or to apply for a liquor license, which had been the problem with the existing lease. The court finds that Plaintiff had good reason to question Quest's ability to obtain financing and a liquor license prior to May 1, 2000. Accordingly, based on the previous relationship and the current financial status of Quest, Quest was not a suitable tenant in January 2000. There is no evidence that Quest remained interested in the Saloon or became financially qualified after that date.
Defendants also argue that Plaintiff efforts to release the Saloon were not reasonable. The efforts to release the Saloon were spearheaded by Barbara Bushell, Plaintiff's in-house marketing manager and real estate broker since August 1999. Ms. Bushell testified that signs indicating that the Saloon was available for lease were placed in the windows of the Saloon as early as August 1999, and were definitely in place in January 2000. The Saloon was advertised in marketing brochures created by Ms. Bushell and distributed among the professional real estate community every two months from March 2000 through November 2000 and was listed as available on the Real-Net database, as well as Commercial Space.com, which are regularly used by the brokerage community. A color brochure advertising the Saloon exclusively was distributed to 108 Portland-area restaurants and the Saloon was formally presented to the Portland Development Commission in February 2000 in response to a Request for Proposals. During the period of time Quest was in default under the Lease, Ms. Bushell showed the Saloon to a number of viable tenants, including Coates Agency, Livingood Company, Sockeye Creative, FAO Schwartz, Stars Cabaret, MBS — Isaac Quintero, Productivity, Inc., Reality Entertainment, and Web Criteria. Eventually, Banana Joe's signed a lease with rent to start on May 1, 2001.
Defendants have failed to convince the court that Plaintiff failed to engage in reasonable efforts to re-lease the Saloon. The mere fact that it took Plaintiff more than a year to re-lease the building is not evidence that it failed to reasonably market the Saloon, especially in light of the fact that the Saloon was unoccupied for a long period of time before Quest signed the Lease. Plaintiff has established that it engaged in reasonable mitigation efforts with regard to the Saloon.
The court acknowledges that the issue of mitigation of damages is generally an issue for the ultimate factfinder to determine. However, there is very little controverted evidence in this matter. While Defendant questions the credibility of Plaintiff's witnesses, it has presented no evidence which materially contradicts the statements made by the witnesses. Accordingly, the court finds that no reasonable factfinder could find that Plaintiff failed to engage in reasonable mitigation efforts.
Defendants make a separate argument that Plaintiff failed to market the parking area that Defendants had agreed to use for valet parking from 6:00 p.m. through 3:00 a.m. Neither party has presented evidence specifically relating to the re-lease of the parking area. Ms. Bushell testified that the parking area was used regularly during the day and that it was full every time she saw it. However, the lease was for the evening, late night and early morning hours. It is unlikely that there was a need for parking during this time period unless related to a dining or entertainment establishment located within the area. Additionally, the availability of valet parking likely enhanced the attractiveness of the Saloon as a dining or entertainment location, in light of the location of the Saloon and the general absence of parking in the area. The court finds that it was reasonable to maintain the availability of the parking area to aide in the efforts to re-lease the Saloon.
The final argument made by Defendants is that the late fee is unenforceable as a liquidated damages clause. Section 30 of the Lease provides:
Defendants also argue that Plaintiff breached the Lease when it failed to send monthly rent notices to Quest in Texas and sent them to the Saloon instead. The court found that Defendants were liable for breach of the Lease in its April 16, 2001, opinion and will not reconsider the issue of liability under the Lease at this time.
LATE CHARGES. Tenant acknowledges that late payment by Tenant to Landlord of any Rent or other charge due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs may include, without limitation, processing and accounting charges and late charges which may be imposed on Landlord under the terms of any Mortgage. Accordingly, if any Rent or other charge is not received by Landlord within 5 days after it is due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of the overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs incurred by Landlord by reason of the late payment by Tenant. Acceptance of any late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to the overdue amount in question, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.
The parties agree that Oregon law governs interpretation of the Lease. Thus, a liquidated damages provision is enforceable only if it is reasonable in light of: (1) the anticipated or actual harm caused by the breach; (2) the difficulties of proof or loss; and (3) the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. O.R.S. 72.7180(1). "A term fixing unreasonably large liquidated damages is void as a penalty." Id. The opponent of the liquidated damages clause bears the burden of proof. Illingworth v. Bushong, 297 Or. 675, 694 (1984). Defendants sole argument against the late fee is that:
Plaintiff's motion papers and supporting evidence do not address much less explain how the 120% charge relates to or reflects the actual damages sustained. The absence of proof on this point exposes the charge for what it really is: and unreasonable penalty which the court should not enforce on grounds of public policy.
Here, the late fee is equal to 10% of the overdue amount for any rent not paid within five days of the date it is due. Plaintiff has calculated the late fee as $1,867.20 and has accessed the fee once for each month. Accordingly, the annual rate is equal to 10% of the annual lease rate, not 120% as asserted by Defendants.
Defendant has failed to meet its burden of establishing that the late fee was not a reasonable forecast of the harm caused by the breach of the Lease. Plaintiff is entitled to the late fee pursuant to the terms of the Lease.
CONCLUSION
Plaintiff's motion (# 60) for summary judgment on the issue of damages is GRANTED. Plaintiff is entitled to judgment against Defendants in the amount of $372,772.80.