Abellan v. Lavelo Prop. Mgmt., LLC

• Decision Date: 04 September 2019
• Docket Number: No. 18-3695,18-3695
• Citation: 948 F.3d 820
• Parties: Ricardo H. ABELLAN, Trustee of the Abellan Family Trust, Plaintiff-Appellee, v. LAVELO PROPERTY MANAGEMENT, LLC, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

948 F.3d 820

Ricardo H. ABELLAN, Trustee of the Abellan Family Trust, Plaintiff-Appellee,

v.LAVELO PROPERTY MANAGEMENT, LLC, Defendant-Appellant.

No. 18-3695

United States Court of Appeals, Seventh Circuit.

September 4, 2019

January 24, 2020

Robert N. LeMay, Jaime M. DeWees, Attorneys, KANE RUSSELL COLEMAN LOGAN PC, Dallas, TX, Charles R. Schmadeke, Attorney, HINSHAW & CULBERTSON LLP, Springfield, IL, for Plaintiff-Appellee.

James R. Branit, Attorney, LITCHFIELD CAVO LLP, Chicago, IL, for Defendant-Appellant.

Before Wood, Chief Judge, and Bauer and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

A New York owner of a fast-food property in Illinois, which was rented by an Arizona tenant, sold the property to buyers in California. Just after the sale, however, the tenant declared bankruptcy and never paid a nickel in rent to its new landlord.

This lawsuit followed. A jury found the purchase agreement rescindable for mutual mistake and the sellers liable for fraud and breach of contract. The buyer, plaintiff-appellee Ricardo Abellan, as trustee of a family trust, took his remedy in damages for a judgment of more than $2 million against defendant-appellant Lavelo Property Management, LLC. "It takes a lot to set aside a jury verdict," Valdivia v. Twp. High School Dist. 214 , 942 F.3d 395, 396 (7th Cir. 2019), and this appeal by Lavelo falls well short. We affirm.

I. Factual and Procedural Background

We state the facts in the light most favorable to the jury’s verdict. In March 2015, Abellan and his wife Trini, of California, as trustees of their family trust, wanted to buy a commercial rental property with a "triple-net" lease, meaning the tenant would be responsible for paying property taxes, insurance, and maintenance costs in addition to rent. In their retirement, the Abellans’ "ideal" was to "just sit" while their tenant would send rent checks.

On the other side of the country in New York, defendant Leonid Chernoy was trying to offload a fast-food property he owned in Le Roy, a small town in central Illinois. Chernoy was the managing member of defendant Lavelo Property Management, a limited liability company formed as an investment vehicle for his family and its trusts. Lavelo in turn was the sole member of defendant HRDS Le Roy IL, a limited liability company formed for the single purpose of holding the Le Roy property. (We focus on Lavelo here because it was a party to the purchase agreement described below and the only defendant against which judgment was entered.)

HRDS had purchased the property from JC123 Holdings, a limited liability company owned by Jason and Carl LeVecke of Arizona (grandsons of Carl Karcher, founder of the Carl’s Jr. chain of fast-food restaurants), under a sale-leaseback arrangement. That means JC123 sold the property to HRDS and HRDS then leased it back to the LeVeckes, specifically to a limited liability company called MIH Star HD, whose managing member was Jason LeVecke.

In April 2013 the LeVeckes purchased the Le Roy property, formerly the site of a restaurant but vacant at the time, for $325,000. Three months later, in July 2013, they sold the still-vacant property to HRDS for $1,100,000. HRDS and MIH Star then executed a twenty-year, triple-net lease of the property, beginning July 2013, "for the operation" by MIH Star of either a Carl’s Jr. or a Hardee’s restaurant (another fast-food chain owned by the same corporate parent). Chernoy understood the LeVeckes would require up to a year to remodel, or in the parlance of commercial real estate, "re-image" the vacant property as a Carl’s Jr. or a Hardee’s.

The re-imaging did not proceed on schedule. At the end of August 2013, Jason LeVecke told Chernoy the property would be open for business by the end of the year. It was not. Chernoy was later told the property would open in May 2014. It did not. A local contractor hired by the LeVeckes began gutting the property in May 2014 but was ordered to stop in June and filed a nearly $50,000 mechanic’s lien against the property in August. Chernoy received notice of the lien in late August. In early September 2014, he decided to sell the property, still vacant and now gutted.

On September 6, 2014, Jason LeVecke told Chernoy the property would open in sixty days. On September 23, it was going to be the end of the year. On October 15, it was "December/January." On December 15, it was "I will get back to you." On January 7, 2015 it was "I ... will update you soon." On January 27, it was going to be the end of April. On April 6, it was June. On May 20, having come full circle, it was again sixty days.

On June 9, 2015, plaintiff Abellan bought the property from HRDS. As noted above, Lavelo was also party to the purchase agreement. The purchase agreement provided for a price of $1.55 million for the property, assignment of the LeVeckes’ lease, and their personal guaranties of the lease obligations. But the LeVeckes never paid any rent to Abellan, and they, along with most of their companies, declared bankruptcy soon after Abellan bought the property. MIH Star did not declare bankruptcy but simply "ceased to exist." HRDS was dissolved on July 10, 2015. Abellan was left holding a vacant and gutted property, assessed for tax purposes at $321,000, with outstanding property tax bills and, most important, with no tenant and no solvent guarantor of the lease.

Abellan filed this lawsuit in the Central District of Illinois under the district court’s diversity jurisdiction. See 28 U.S.C. § 1332. The case was tried against defendants HRDS, Lavelo, and Chernoy on Abellan’s claims for mutual mistake, fraud, and breach of contract. The jury returned a verdict in Abellan’s favor on each claim, though it awarded no damages for fraud and the judge denied rescission as a matter of equity. After the court decided post-trial motions from both sides, the final judgment ordered Lavelo to pay Abellan $1,289,341.72 in damages for breach of contract, $164,079.98 in prejudgment interest, $627,702.15 in attorney fees, and $29,061.28 in costs. Lavelo is the only appellant. We have jurisdiction under 28 U.S.C. § 1291.

II. Analysis

Lavelo appeals the denial of its motions for judgment as a matter of law, for a new trial, and for amendment of the judgment, as well as the awards of prejudgment interest and attorney fees. We address each challenge in turn. The parties agree, with only one exception discussed below, that Illinois substantive law applies, so we apply Illinois law. Wood v. Mid-Valley Inc. , 942 F.2d 425, 427 (7th Cir. 1991).

A. Judgment as a Matter of Law

Abellan asserted that the sellers breached the parties’ purchase agreement in two ways: first by falsely warranting that MIH Star was not in default of the lease while knowing that MIH had not "continuously operated" its business as the lease required; and second by failing to deliver to Abellan certain notices received from MIH Star that related to the lease. Lavelo maintains that after all the evidence was in, it could not as a matter of law be held liable for breaching either the no-default warranty or the notice-delivery provision contained in the purchase agreement.

We review de novo a district court’s denial of a motion under Federal Rule of Civil Procedure 50(b) for judgment as a matter of law, affirming if any reasonable jury could have found for the non-movant. Wallace v. McGlothan , 606 F.3d 410, 418 (7th Cir. 2010), citing Tammi v. Porsche Cars North America, Inc. , 536 F.3d 702, 707 (7th Cir. 2008). Because a post-verdict Rule 50(b) motion is "only a renewal" of a pre-verdict Rule 50(a) motion, a Rule 50(b) motion may be granted "only on grounds advanced in the preverdict motion." Id. , quoting Fed. R. Civ. P. 50(b) advisory committee’s note to 2006 amendment.

Though a non-movant may waive or forfeit these requirements, id. at 419, citing Collins v. Illinois , 830 F.2d 692, 698 (7th Cir. 1987), Abellan insisted on their observance in the district court and the court observed them scrupulously. Accordingly, as did the district court, we limit our review to the grounds for judgment advanced by Lavelo in its Rule 50(a) motion. We limit our review further, as did the district court, to Lavelo’s arguments on the no-default warranty, as a general verdict in a civil case may be affirmed on any legally sufficient theory submitted to the jury. Kossman v. Northeast Ill. Reg’l Commuter R.R. Corp. , 211 F.3d 1031, 1037 (7th Cir. 2000) ; Freislinger v. Emro Propane Co. , 99 F.3d 1412, 1418 (7th Cir. 1996) ; Culli v. Marathon Petroleum Co. , 862 F.2d 119, 123 (7th Cir. 1988).

The purchase agreement contained a no-default warranty. The sellers warranted to buyer Abellan that there was "no default by Seller, or to Seller’s knowledge, by MIH Star HD, LLC under the Lease." A critical provision of the lease required the tenant to operate its restaurant business continuously. The lease provided that it would constitute an "Event of Default":

If Tenant fails to continuously operate its business within the Premises except for temporary periods of closure caused by casualty, or temporary and reasonable periods of remodeling, not to exceed ninety (90) days in any Lease Year without first obtaining Landlord’s written approval which approval shall not be unreasonably withheld, so long as Tenant is diligently pursuing re-opening of the Premises.

Lavelo has preserved two arguments why it should not be held liable for breach of the no-default warranty by MIH Star’s (the LeVeckes’) default of the continuous-operations provision. First, Lavelo’s Chernoy testified that he understood the continuous-operations provision to lie dormant until a restaurant began to operate on the property but none ever did. If that had been his understanding, then the warranty of no default "to Seller’s knowledge" arguably would not have been breached. Second, even if MIH Star breached the continuous-operations provision by failing ever to operate a restaurant under the lease, Lavelo contends that it and HRDS...