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First National v. Federal Realty Investment Rmw

February 1, 2011

FIRST NATIONAL MORTGAGE COMPANY, A CALIFORNIA CORPORATION,
v.
FEDERAL REALTY INVESTMENT RMW TRUST, DEFENDANT-APPELLANT. FIRST NATIONAL MORTGAGE COMPANY, A CALIFORNIA CORPORATION,
PLAINTIFF-APPELLEE,
v.
FEDERAL REALTY INVESTMENT RMW TRUST, DEFENDANT-APPELLEE. FIRST NATIONAL MORTGAGE COMPANY, A CALIFORNIA CORPORATION,
PLAINTIFF-APPELLANT,
v.
FEDERAL REALTY INVESTMENT RMW TRUST, DEFENDANT-APPELLANT. PLAINTIFF-APPELLEE, FIRST NATIONAL MORTGAGE COMPANY, A CALIFORNIA CORPORATION,
PLAINTIFF-APPELLANT,
v.
RMW FEDERAL REALTY INVESTMENT TRUST,
DEFENDANT-APPELLEE.



D.C. No. 5:03-cv-02013 Appeal from the United States District Court for the Northern District of CaliforniaRonald M. Whyte, Senior District Judge, Presiding

The opinion of the court was delivered by: Thompson, Senior Circuit Judge:

FOR PUBLICATION

D.C. No. 5:03-cv-02013 D.C. No. 5:03-cv-02013 D.C. No.5:03-cv-02013

OPINION

Argued and Submitted December 7, 2010-San Francisco, California

Before: Dorothy W. Nelson, David R. Thompson, and M. Margaret McKeown, Circuit Judges. Opinion by Judge Thompson

OPINION

Federal Realty Investment Trust ("Federal Realty") appeals the district court's judgment, pursuant to a jury's special verdict and the court's findings of fact and conclusions of law, in favor of First National Mortgage Company ("First National") in First National's action for breach of contract. First National sought to recover for Federal Realty's anticipatory breach of a "Final Proposal" signed by the parties with respect to commercial property in San Jose, California. The court awarded First National $15.9 million in damages for lost rent and for the loss of its "put" option under the Final Proposal. First National cross-appeals and also appeals the district court's order denying it recovery of reasonable expert witness fees pursuant to California Code of Civil Procedure § 998(d).

We conclude that the district court did not err in finding that there was conflicting evidence as to whether the Final Proposal was meant to be binding and whether the parties intended the ten-year "put" and "call" options in it to provide for a ten-year duration of the lease. The district court, therefore, properly submitted these questions to the jury. Substantial evidence supports the jury's special verdict in favor of First National on both issues.

The district court also did not err in awarding First National the full benefit of its bargain in the form of damages for both lost rent and the value of its lost put option. Finally, the district court properly determined that First National could not recover the amount of its expert witness fees under the relevant California statute, but could recover limited expert witness fees pursuant to federal law. Accordingly, we affirm in all respects.

I. BACKGROUND

A. Factual history

Federal Realty is a publicly-traded real estate investment trust that owns and develops shopping centers and mixed-use projects. First National is a San Jose-based mortgage company. Beginning in the late 1990s, Federal Realty set out to develop Santana Row, a mixed-use project in San Jose, which was intended to be one of the nation's largest mixed-use projects. As part of its efforts to develop Santana Row, Federal Realty sought to acquire the property at issue in this case ("the Property"). The Property was owned by D&R Partnership (not a party to this suit) and leased by it to First National. During the relevant time, Hal Dryan had majority ownership and "absolute control" of both First National and D&R Partnership.

Over the course of several years, First National and Federal Realty engaged in protracted negotiations concerning the Property. At various points in the negotiations, Federal Realty offered either to buy the Property outright or to enter into a ground lease for it-i.e., a lease of the underlying land with the intention of redeveloping the buildings on the property. The negotiations intensified in the summer of 2000, when the parties exchanged several proposals regarding the terms for the ground lease, including a "Counter Proposal" and a "Revised Proposal." At this time, First National rejected Federal Realty's attempt to buy the Property outright, noting that "a purchase agreement does not address [First National's] long term interests." Finally, on August 25, 2000, Hal Dryan, on behalf of First National, and Steve Guttman, the President and CEO of Federal Realty, signed a document entitled "Final Proposal."

The Final Proposal is a one-page, nine-paragraph document regarding a ground lease of the Property. It provides for a rent of $100,000 per month, with increases of 3% annually. It gives First National a ten-year "put" option, allowing First National to require Federal Realty to buy the Property at any time during the ten years. It also gives Federal Realty a "call" option at the end of ten years, by which Federal Realty can require First National to sell it the Property at that time. The Final Proposal also provides that First National will be reimbursed $75,000 to buy out its current lease tenant, New Things West. Under the Final Proposal, Federal Realty was to "prepare a legal agreement for First National's review to finalize the agreement." The effective date of the agreement was to be the "date of vacating premises." Finally, the last clause of the Final Proposal provides: "The above terms are hereby accepted by the parties subject only to approval of the terms and conditions of a formal agreement." A copy of the Final Proposal is attached to this opinion as Appendix A.

Following the signing of the Final Proposal, the parties engaged in extensive, but ultimately unsuccessful, negotia- tions towards a formal agreement. As part of these negotiations, the parties exchanged several ideas regarding the proposed lease, with Federal Realty suggesting a lease term of 34 years, and First National suggesting a lease term of 50 years. The parties also discussed the possibility of an outright sale, but First National refused to sell the Property for less than $15 million.

While these negotiations were ongoing, First National gave New Things West notice to vacate the premises. First National then informed Federal Realty of the notice to vacate and asked to be reimbursed for any accompanying loss in rent. In a letter dated May 11, 2001, Federal Realty rejected any indication that it had to reimburse First National and noted that "[b]ecause we have never resolved a number of significant business issues relating to the acquisition of the Property, we still do not have a binding agreement in place for that acquisition."

Soon thereafter, the real estate market took a turn for the worse, and, although the parties exchanged several more offers and counteroffers, they were unable to reach an agreement. When these efforts proved unsuccessful, First National filed this action. It recovered damages for Federal Realty's anticipatory breach of the Final Proposal, and this appeal followed.

B. Procedural history

In its complaint, First National alleged that Federal Realty had committed a breach of contract (and anticipatory breach) by refusing to pay rent and repudiating First National's "put" to require Federal Realty to buy the Property. In response, Federal Realty filed several motions to dismiss and for summary judgment. As relevant to this appeal, the district court rejected Federal Realty's argument that the Final Proposal was not binding because of the last clause calling for a "formal agreement." According to the court, although the extrin- sic evidence presented "persuasively suggest[ed] that the Final Proposal was conditional and that neither party intended otherwise," the last clause was reasonably susceptible to different interpretations, thereby precluding summary judgment.

The court also rejected Federal Realty's argument that the Final Proposal was not binding because it was missing an essential provision-the duration of the lease. In doing so, the court allowed First National to amend its complaint to allege that "the ten year 'put' and 'call' provisions . . . were intended by the parties, and each of them, to, and did, have a special meaning, that is, to establish a lease term of ten years." After examining the extrinsic evidence, the court concluded that First National's interpretation of the events surrounding the put and call options was "plausible" and sufficient for the question to go to the jury.

The liability phase of the case was tried to a jury in June 2006. The jury found in favor of First National on its anticipatory breach claim. The jury found that the parties intended the Final Proposal to be an enforceable agreement, and intended the put and call options to set a ground lease duration of ten years. The district court subsequently denied Federal Realty's motion for judgment as a matter of law or, in the alternative, a new trial, concluding there was sufficient evidence to support the jury's special findings.

The damages phase was tried to the court in April 2008. The court ultimately awarded First National damages of $15,901,274. Out of that amount, approximately $10.6 million, including interest, was based on lost rent from the ground lease, and approximately $5.2 million was based on Federal Realty's breach of First National's put option. The court specifically found that to receive the "full benefit of its bargain," First National was entitled to recover damages for both breach of the lease and breach of its put option.

The district court also denied First National's motion to recover certain expert witness fees under California Code of Civil Procedure ยง 998(d), which was based on First National's pre-trial offer to compromise that Federal Realty rejected. The court found that First National reasonably incurred $358,811 in expert witness fees. However, First National could not recover those fees, but was limited to a recovery of expert witness fees under ...


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