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Bridev One, LLC v. Regency Centers, L.P.

Superior Court of Delaware

July 20, 2017

BRIDEV ONE, LLC, d/b/a PIREES PIRI PIRI GRILL, JAY PATEL, and MEGHA PATEL, Plaintiffs,
v.
REGENCY CENTERS, L.P., Defendant.

          COMMISSIONER'S REPORT AND RECOMMENDATION FOR ORDER AWARDING DAMAGES

          Commissioner Katharine L. Mayer Judge.

         On October 31, 2016, the Court issued a Decision After Trial resolving the merits of this litigation. Soon thereafter, the matter was referred to the undersigned to determine the amount of damages to be awarded to the prevailing party. On June 8, 2017, an Inquisition Hearing[1] was held and both parties appeared and presented their respective positions. Having considered the record in this matter as well as the evidence and arguments presented at the hearing, this is my Report and Recommendation.

         BACKGROUND

         Litigation between the parties commenced in 2014 when Bridev One, LLC d/b/a Pirees Piri Piri Grill ("Bridev"), Jay Patel and Megha Patel (the "Guarantors" and collectively with Bridev, the "Plaintiffs") filed a Complaint that included claims of Declaratory Judgment, Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealings and Common Law Fraud.[2] Through the Complaint, Bridev, as the tenant, and the Guarantors, sought a judgment voiding a commercial lease and awarding consequential damages, punitive damages, pre- and post-judgment interest, costs, attorneys' fees and other relief. Defendant, Regency Centers, L.P. ("Regency" or "Defendant"), the landlord, answered the Complaint and asserted a cross-complaint alleging Breach of the Lease by Bridev and Breach of the Personal Guaranty by both Guarantors.[3]

         The Decision After Trial was issued after a three (3) day bench trial.[4] The Court found that (i) Plaintiffs failed to prove by a preponderance of the evidence that Regency breached the Lease or the covenant of good faith and fair dealing; and (ii) Regency had proven by a preponderance of the evidence that Bridev breached the Lease and the Guarantors breached their Guaranty. The Court therefore entered judgment against Plaintiffs and in favor of Defendant.

         On November 16, 2016, Regency filed a Motion for Hearing on Damages and Entry of Final Judgment.[5] Plaintiffs responded in opposition and Regency submitted a reply.[6] After denying Plaintiffs' motion for a new trial, the Court issued an Order[7]referring this matter to the undersigned to conduct an Inquisition Hearing for the purpose of determining the amount of damages to be awarded to Regency. Prior to the hearing, Regency submitted an Updated Motion supplementing its damages figures, Plaintiffs objected and presented several arguments in opposition to the relief requested, and Regency replied.[8] The Inquisition Hearing was held on June 8, 2017 at which time Regency presented several witnesses in support of its position and Plaintiffs countered with limited testimony from Mr. Patel.[9]

         After consideration of the extensive history of this matter, the relevant pleadings, the evidence presented at the hearing, and the argument of the parties, I recommend that damages be awarded to Regency as set forth below.

         FINDINGS OF FACT AND CONCLUSIONS OF LAW

         Regency seeks to recover three categories of damages including: (1) rent, both past and future, and "Additional Rent"; (2) interest; and (3) attorney fees and costs. Plaintiffs objected and argued that Regency's attorney fees and costs were excessive, the Lease required Regency to mitigate its damages claim for rent, Regency cannot recover Common Area Maintenance charges, and the application of interest should be capped at the legal rate or no more than 5.75 %. I will address each of these categories in seriatim.

         I. REGENCY'S REQUEST FOR RENT AND ADDITIONAL RENT

         In support of its request for an award of damages relating to its rent claims, Regency offered the testimony of William A. Madway ("Madway"), an employee and property manager of Regency.[10]

         A. Unpaid Rent

         Madway testified that the base rent from December 1, 2013 through June 8, 2017 amounted to $257, 542.87.[11] Plaintiffs do not contest the method used to calculate the unpaid rent but rather argue that Regency was required to mitigate its damages. Plaintiffs assert that Regency was obligated to take possession of the Premises at the earliest opportunity and that rent should not accrue after the date when Plaintiffs turned over the key to the property. In reply, Regency refers to the Decision After Trial wherein the Court held that in accordance with Section 18.7 of the Lease, "Regency did make 'commercially reasonable efforts' to mitigate any damages." However, Plaintiffs proffer that this finding was limited to the Court's analysis at the time of trial, and Regency was required to continue to establish mitigation of damages post-trial.

         Section 18.7 of the Lease requires each of the parties to use "commercially reasonable efforts to mitigate any damages resulting from a default of the other party under this Lease." The Landlord's obligations though are tempered by certain possibilities. The Landlord is not obliged to:

(a) enter into negotiations with prospective tenants until the Landlord has complete possession pursuant to a final and unappealable legal right to re-let;
(b) offer the Premises if there is other space available in the Shopping Center suitable for the prospective tenant's use;
(c) lease the Premises for a lower rent or with unacceptable terms and conditions;
(d) enter into a lease if the proposed use would disrupt the tenant mix of the Shopping Center, violate the terms of any other lease, adversely affect the reputation of the Shopping Center, or be incompatible with the operation of the Shopping Center;
(e) enter into a lease with a proposed tenant that has insufficient financial resources; and
(f) expend funds to make the Premises suitable for a proposed tenant.

See Lease Sections 18.7(a) - (f). The burden of proof as to the reasonableness of Regency's mitigation efforts is to be borne by the Plaintiffs pursuant to the agreement.

         I find that Regency is not obligated to offer the Premises to a new tenant when other space in the Shopping Center suitable for that prospective tenant's use is, or soon will be, available. Madway testified at the hearing that space continues to remain vacant at the Shopping Center and therefore, Regency has been unable to re-let the Premises. Plaintiffs did not present any compelling evidence at the hearing to contradict Regency's proffer on this issue. In light of the availability of space in the Shopping Center, Regency is not contractually obligated to mitigate its damages further. For these reasons, Regency is entitled to recover its unpaid rent in the amount of $257, 542.87.

         B. Additional Rent

         Regency also seeks "Additional Rent" in the amount of $86, 592.00, representing Bridev's Proportionate Share of Common Area Costs, Taxes and Insurance (hereinafter "CAM charges").[12] According to the Lease, the estimated CAM charges for 2013 would be a total of $1, 580.29 based on the gross leasable area of the tenant's premises in relation to the entire gross leasable area of the building.[13] A tenant's proportionate share of Additional Rent can only increase or decrease when there is an addition or deletion to either the tenant's premises or the landlord's building.[14] Therefore, unless or until the gross leasable space changes, the CAM charges remain the same, Plaintiffs disputed the award of CAM charges on the basis that no notices were sent documenting the amount owed and therefore, Plaintiffs were unable to assess the validity and amount of the charges. In response, Regency argues that despite the passage of time, the gross leasable space did not change and pursuant to Section 8.6(c) of the Lease, any failure or delay by Regency in delivering a statement "shall not" constitute a waiver of Regency's right to payment of the CAM charges.

         In consideration of the express terms of the Lease, and the testimony of Madway, I agree with Regency that CAM charges are recoverable. When entering into the Lease, and guarantying the obligations, Plaintiffs understood that the CAM charges would be an additional charge of $1, 580.29 per month. The Lease explained how that figure was calculated and Plaintiffs agreed to be bound by it. They cannot now claim ignorance with respect to how that debt is incurred or calculated. The obligation did not increase despite the passage of time, nor did Plaintiffs present any evidence to show the GLA had decreased or changed. Plaintiffs' evidence in rebuttal consisted solely of the testimony of Mr. Patel that he did not receive notices explaining the CAM charges and therefore, Plaintiffs assert they should not be bound by this debt. I am not persuaded by this argument for two reasons. First, the parties were all aware from the negotiation and execution of the Lease that the tenant was responsible for CAM charges. Therefore, they cannot now claim surprise. Second, Section 8.6(c) preserves Regency's ability to seek CAM charges regardless of whether written notice is provided. If the amount billed had changed over time or evidence had been proffered to show a modification of the GLA, perhaps Plaintiffs' argument would convince the Court otherwise. However, absent either change in circumstance and in light of the remaining evidence presented, I recommend an award of CAM charges in the amount of $86, 592.00 as "Additional Rent."[15]

         C. Future Rent

         Forming a third part of its rent claim, Regency seeks an award of future rent pursuant to Section 18.2(c) which provides that in the event of default, the landlord may

retake possession of the Premises from Tenant by summary proceedings or otherwise, either with or without terminating this Lease, and to sue Tenant for an amount equal to the remaining Rent to become due during the Term (or any extension periods then in effect) discounted to its present value at a discount rate equal to the U.S. Treasury Bill or Note rate with the closest maturity to the remaining term of this Lease as selected by Landlord...

         Madway calculated the future rent by looking to the base rent from the date of the hearing through the conclusion of the lease term and reduced or discounted it to net present value, resulting in a total of $94, 407.61.[16] Likewise, the CAM charges were calculated through the remaining term, and after discounting to net present value, Regency seeks an additional $23, 053.93 for future Additional Rents.[17]

         At the hearing, I shared Plaintiffs' concern that they were being asked to pay rent for the remaining term of the Lease, without any party - or the Court - knowing when or if the premises would be re-let. Courts have held though that parties may freely agree that the time for the payment of rent may be accelerated[18] and despite the scant legal authority of comparable cases, Delaware has enforced similar provisions.[19] In analyzing the provision, the courts will look to whether the clause allows recovery in an amount that approximates what the landlord could have reasonably expected to suffer in the event of a breach, and whether damages are difficult to estimate accurately.[20] Assuming this ...


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