Fisher Properties, Inc. v. Arden-Mayfair, Inc., ARDEN-MAYFAI

• Court: United States State Supreme Court of Washington
• Citation: 115 Wn.2d 364,798 P.2d 799
• Docket Number: INC,Nos. 55135-9,55845-1,ARDEN-MAYFAI,s. 55135-9
• Parties: FISHER PROPERTIES, INC., a Delaware corporation, Respondent, v., a Washington corporation, Appellant. En Banc
• Decision Date: 18 October 1990

Page 364

115 Wn.2d 364 798 P.2d 799 FISHER PROPERTIES, INC., a Delaware corporation, Respondent,
v.
ARDEN-MAYFAIR, INC., a Washington corporation, Appellant. Nos. 55135-9, 55845-1. Supreme Court of Washington, En Banc. Oct. 18, 1990.

[798 P.2d 801]

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Helsell, Fetterman, Martin, Todd & Hokanson, William A. Helsell, Bradley H. Bagshaw, Seattle, for appellant.

Graham & Dunn, Edward W. Pettigrew, Douglas C. Berry, Frederick O. Frederickson, Seattle, for respondent.

UTTER, Justice.

Arden-Mayfair, Inc. (Arden) appeals from a judgment entered by the trial court on remand from this court's decision in Fisher Properties, Inc. v. Arden-Mayfair, Inc., 106 Wash.2d 826, 726 P.2d 8 (1986). We affirm in part and reverse in part.

This case involves a dispute over Arden's obligations under a lease originally executed in 1923 between the parties' predecessors in interest. Arden's predecessor leased from Fisher's predecessor several lots on the Seattle tidelands for the purpose of building an ice cream manufacturing facility. The lease required the lessor to construct the building and the lessee to install all machinery and equipment necessary for the operation. Paragraph 27 of the lease made these installations part consideration for the lease. The lease also contained provisions requiring the lessee to repair the premises and to restore the premises to their original condition if the lessor so desired.

An addendum to the lease executed in 1926 incorporated most of the original lease but not paragraph 27. The lease was periodically renewed until 1978 when Arden gave 1-year notice of termination, as required by the lease, and vacated the property. Fisher exercised its option under the lease to require Arden to return the property to its original condition.

In 1981, Fisher brought suit alleging Arden violated the repair and restoration clauses of the lease, and for failure to comply with building codes. In 1983, Fisher added a claim for commissive waste and requested treble damages. After an 11-week trial, the court held that Arden had breached its obligations under the lease and committed waste. The trial court interpreted original condition of the premises to mean the configuration before the installation of equipment

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and features pursuant to paragraph 27 of the original lease, and held that Arden did not return the premises to their original condition. The trial court awarded damages for repair and restoration costs, violation of building codes, lost rental, treble damages for waste and attorney fees.

Arden appealed directly to this court. In 1986, this court affirmed the damages for repair costs, lost rental and commissive waste, but reversed the awards for restoration costs, violation of codes, and attorney fees. Fisher Properties, Inc. v. Arden-Mayfair, Inc., 106 Wash.2d 826, 726 P.2d 8 (1986). The court held that installations made by Arden's predecessor during the construction of the building were part of the original condition and the lease did not require Arden to remove them. Fisher, 106 Wash.2d at 835, 726 P.2d 8. The court held that Arden was not subject to damages for code violations because no government authority had ordered Arden to make repairs or shut down for noncompliance and there was no evidence of such governmental[798 P.2d 802] orders. Fisher, at 842-43, 726 P.2d 8. The court reversed the attorney fees award because the trial court awarded Fisher almost all of its claimed attorney fees, but the statute authorized attorney fees only for the commissive waste claim. Fisher, at 849-50, 726 P.2d 8. The court ordered the trial court to award fees for only that time spent on the waste claim. Fisher, at 850, 726 P.2d 8.

The decision clarified the appropriate measure of damages for breach of lease. While the general measure of damages is the cost of returning the premises to the condition required by the lease, the diminution in market value of the premises caused by the breach is to be used if less than the cost of restoration. Fisher, at 843, 726 P.2d 8.

The court remanded to the trial court for a reassessment of restoration damages and attorney fees. Fisher, at 855, 726 P.2d 8. Arden moved for reconsideration claiming a new trial on damages was necessary. The court denied the motion.

On remand, the trial judge declined to take additional evidence on diminution in value and reached his findings based solely on the record produced at trial. He held that the cost of restoration was less than diminution in value

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and awarded damages on that basis. He excluded from damages the items which the lessee installed pursuant to the original lease and reduced the award to reflect this court's decision concerning the building codes and the garage. He held that the original condition of the warehouse did not include equipment installed in the initial construction. He reduced the attorney fees by 20 percent for time spent outside of trial and by 15 percent for time spent in trial. The trial judge added fees for time spent on remand on calculating the fees. He directed interest on the modified judgment to run from the date of the original judgment in 1983.

Arden appealed and we granted review. Fisher cross-appealed on the issue of whether the trial court should calculate attorney fees using counsel's historical or current hourly rates.

I

Damages for breach of lease are determined by two methods: the cost of restoration of the premises to a prescribed condition or the diminution in market value of the property as a result of the failure to comply with the lease. The appropriate measure of damages is the method which yields the lesser amount. Fisher, at 843-44, 726 P.2d 8; 2 M. Friedman, Leases § 18.1 (2d ed. 1983). The plaintiff must come forward with evidence on only one of the measures of damages and then the burden of production shifts to the defendant to present evidence that the other measure of damages is less.

Arden alleges the trial court erred in refusing to take additional evidence on the issue of diminution in market value and in reaffirming its original finding that diminution in market value exceeded the cost of restoration. Arden claims this court's mandate in Fisher required the trial court to make findings on the value of the premises as they would have been if Arden performed its obligations and the actual value of the premises as Arden left them. The difference between the two values is the diminution in market

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value. The trial judge reaffirmed his finding that the value of the premises had Arden complied with the lease would have been $1,442,221 as of the date of termination. The trial judge did not make a finding on the actual value of the premises. Nonetheless, he was convinced that diminution was greater than the cost of repair and restoration.

This court did not order a new trial in Fisher, rejecting the idea that a new trial was necessary by denying Arden's motion for reconsideration. Fisher required the trial court to allocate the burdens of proof as indicated and then determine which measure of damages was the lesser, and thus, the proper one. It was within the trial judge's discretion to take additional evidence. See Old Windmill Ranch v. Smotherman, 69 Wash.2d 383, 391, 418 P.2d 720 (1966) (cause remanded for additional findings; the trial court may take additional evidence as it deems necessary [798 P.2d 803] in order to make findings). His decision not to allow new evidence was not an abuse of his discretion given the voluminous trial record on the measure of damages.

The trial court found that the cost of restoration was the proper measure of damages. Arden challenges the trial court's findings of fact. Accordingly, the issue of sufficiency of the evidence, which we declined to consider in Fisher, is now squarely before the court. Ridgeview Properties v. Starbuck, 96 Wash.2d 716, 719, 638 P.2d 1231 (1982) (where the trial court has weighed the evidence, appellate review is limited to determining whether the findings of fact are supported by substantial evidence). There is a presumption in favor of the trial court's findings, and Arden, the party claiming error, has the burden of showing that a finding of fact is not supported by substantial evidence. Leppaluoto v. Eggleston, 57 Wash.2d 393, 401, 357 P.2d 725 (1960).

We find a failure to show there is not substantial evidence to support the trial judge's holding. The trial court expressly found Fisher's witnesses credible and Arden's witnesses not credible. The trial court was in a better position to evaluate the credibility of witnesses and we will not substitute our judgment for that of the trial

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court in reviewing findings of fact. Davis v. Department of Labor & Indus., 94 Wash.2d 119, 124, 615 P.2d 1279 (1980).

Diminution in market value is the difference between the value of the premises in good condition and the value of the premises in the condition the lessee left them. There is substantial evidence to support the trial judge's finding of the market value of the premises had Arden left them in good condition.

Fisher's witness, William Krippaehne, calculated the market value of the premises had Arden complied with the lease using the income approach to value. ¹ He testified as to the total gross income of the property based on the square footage and the rental rate per square foot. He derived these figures from a report prepared by his associate, Gordon Logan. The report was admitted into evidence and Mr. Logan testified as to the basis for his conclusions concerning rental rates. His conclusions were premised on the buildings' general utility for warehousing, light manufacturing, storage and office space, and his knowledge of rates for comparable buildings.

Mr. Krippaehne then determined the net operating income using three different vacancy rates--30 percent, 15 percent, and 7 percent vacancy. He divided the net operating income by a capitalization rate of...