Katz Deli of Aventura, Inc. v. Waterways Plaza, LLC

• Decision Date: 27 November 2013
• Docket Number: 3D13–124.,Nos. 3D12–3409,s. 3D12–3409
• Citation: 183 So.3d 374
• Parties: KATZ DELI OF AVENTURA, INC., Appellant, v. WATERWAYS PLAZA, LLC, etc., Appellee.
• Court: Florida District Court of Appeals

183 So.3d 374

KATZ DELI OF AVENTURA, INC., Appellant,

v.WATERWAYS PLAZA, LLC, etc., Appellee.

Nos. 3D12–3409

3D13–124.

District Court of Appeal of Florida, Third District.

Nov. 27, 2013.

Law Offices of Scott Alan Orth, P.A., and Scott Alan Orth, Miami Shores, for appellant.

Lance W. Schinder, P.A., and Lance W. Schinder and Arielle L. Berg ; Bambi G. Blum, P.A., and Bambi G. Blum, Miami, for appellee.

Before ROTHENBERG, FERNANDEZ and SALTER, JJ.

ROTHENBERG, J.

This consolidated appeal and cross-appeal contests the amount of damages awarded for a breach of contract that led to the constructive eviction and ultimate destruction of Katz Deli of Aventura's business. Because we agree that prospective lost profits was the correct measure of damages, and find no clear error with the trial court's factual finding that awarding prospective lost profits beyond the initial lease term would be too speculative, we affirm.

BACKGROUND

The Haibi family owned and operated a successful business, "Katz Deli of New York," in Pembroke Pines, Florida. After several years of successfully operating the deli in Pembroke Pines, the family decided to expand by opening a new location in Aventura. Katz Deli of Aventura ("Katz Aventura") leased a space in the Waterways Plaza of Aventura ("the Plaza") for that purpose.

The original lease at the Plaza was for a small location—approximately 4,828 square feet—and the deli operated successfully there for approximately two and a half years, with growing revenues in each annual sales cycle. In October of 2001, Katz Aventura formed a new corporation, "Katz Deli Restaurant & Marketplace" ("Katz Deli"), and signed a new lease with the Plaza landlord for a substantially larger space within the Plaza consisting of 15,336 square feet. Katz Deli reopened in the new, larger space in January 2002, which contained a deli and a small Jewish marketplace. Katz Aventura and Katz Deli (collectively "Katz"), though separate entities, were treated as the de facto same company for all relevant purposes of this case.¹

The initial lease for the new location required monthly rental payments of approximately $25,000, which were to commence in May 2002 and run through April 30, 2007, with built-in 3% annual rent increases. The lease also contained a clause allowing Katz up to three automatic lease renewals for five-year terms by giving six months' written notice to the landlord, which could potentially extend the lease through April 30, 2022.² The lease further required the landlord to make all necessary repairs to the structure and roof. The rental payments set forth in this lease and the automatic renewal periods were well below market value, and were negotiated by the former non-defendant owner of Waterways Plaza before the defendant, Waterways Plaza, LLC ("Waterways"), purchased the property.

Waterways purchased the Plaza subject to Katz's lease, and therefore became Katz's landlord in June 2002. During its due diligence before purchasing the Plaza, Waterways commissioned a study of the property, which showed that the roof of Katz Deli was "beyond repair" and needed to be replaced. Waterways did not timely make these roof repairs. Sometime in 2002, Katz's roof began to leak. Waterways attempted to make minor repairs to the roof, but nothing short of a full reroofing could have stopped the leaking. The leaks got progressively worse, eventually resulting in open flows of water into the premises and creating mold and a musty smell throughout the deli.

As a result of the leaks and smell, Katz suffered a substantial decrease in business and its reputation. By May 2003, the location was deemed unfit for use as a restaurant. Katz Aventura filed suit against Waterways soon thereafter on June 5, 2003, claiming breach of contract and constructive eviction. Katz fully paid its rent through May 2003, and voluntarily placed over $21,000 into the court registry upon filing suit to cover the June 2003 rent.³ After Katz moved out of the space at the end of July 2003, Waterways completely reroofed the building and found new tenants.

The repairs were completed in October 2003. Thereafter, Waterways partitioned the space and had already entered into new leases with two tenants, Sarah's Tent and China Bistro, for use of the space that had previously been occupied by Katz Deli at a substantially higher rental payment. These new tenants were still in that location and operating successfully at the time of trial despite the higher rental payments. Katz alleges that it was willfully evicted from the premises because Waterways knew that it could take advantage of a new market-rate lease.

Based on Waterways' actions, Katz brought suit for breach of contract and constructive eviction. Katz also filed a lis pendens for foreclosure of an equitable lien under a provision in the lease providing that, "Tenant shall look solely and only to the Landlord's interest in the Plaza in the event of any default or breach." At the conclusion of a bench trial, the trial court dismissed the equitable lien action, but found that Katz had been constructively evicted due to Waterways' gross negligence in failing to maintain the roof, and that Waterways had thereby breached the lease agreement.

At a separate hearing on damages, the trial court specifically found that Katz was a successful, ongoing business until the actions by the landlord caused Katz's business to decline. Katz called an expert accountant, Mr. Druckman, who calculated the projected lost profits resulting from the breach by using various accounting techniques.⁴ Waterways, however, argued at the hearing that the market value of the business, not prospective lost profits, was the proper measure of damages because the business was completely destroyed. Katz seemingly had not anticipated this argument, and the only evidence proffered as to the market value of Katz Deli was that of the owner, Ron Haibi, who testified that the business's value was approximately $1.5 million. Haibi's estimation of the deli's value was reached by referencing an insurance policy that was taken out for the business and a prior offer to purchase Katz Deli that the Haibis had refused.

The trial court ultimately found that Katz was entitled to future lost profits rather than the market value of the business, and awarded projected lost profits through the end of the initial lease term (April 2007), which totaled approximately $800,000 plus pre-judgment interest, but denied lost profits as to the renewal terms that potentially ran through 2022 because the trial court found that profits for this period were not reasonably certain. The trial court also denied recovery of various claimed out-of-pocket expenses Katz allegedly incurred due to the eviction, including pending food product purchases, destruction of equipment and inventory, and interest on loans taken out for the business. The trial court further awarded Katz attorney's fees as the prevailing party under a provision in the lease, but refused to apply a contingency fee multiplier because it found that a multiplier was not necessary in order for Katz to procure counsel in this case.

On appeal, Katz argues that: (1) it should be awarded the difference in rent between the amount Katz was paying under its favorable lease and the rent payments the new tenants were making plus its lost profits; (2) if lost profits alone is the proper method of calculation, it should be awarded lost profits through the end of the renewal periods in 2022; (3) the trial court improperly denied various out-of-pocket expenses caused by the leak; (4) the trial court erred by dismissing its equitable foreclosure and lis pendens; and (5) Katz should have been awarded a contingency fee multiplier for its attorney's fees.

Waterways cross-appeals, arguing that lost profits is not the proper method of calculation. Instead, Waterways claims that market value at the date of loss is the proper measure of damages, and because insufficient evidence was offered to establish the proper market value of Katz Deli, Katz should be awarded no damages.

DISCUSSION

A constructive eviction constitutes a breach of the covenant of quiet enjoyment. Barton v. Mitchell Co., 507 So.2d 148, 149 (Fla. 4th DCA 1987) (citing Richards v. Dodge, 150 So.2d 477 (Fla. 2d DCA 1963) ). Furthermore, Waterways' grossly negligent failure to repair the roof as required by the lease was a breach of its contract. Barton, 507 So.2d at 149. In an action for breach of contract, the goal is to place the injured party in the position it would have been in had the other party not breached the contract so as to give the aggrieved party the benefit of its bargain. Lindon v. Dalton Hotel Corp., 49 So.3d 299, 305 (Fla. 5th DCA 2010) ; Ashland Oil, Inc. v. Pickard, 269 So.2d 714, 723 (Fla. 3d DCA 1972). However, a successful plaintiff "is not entitled to be placed, because of that breach, in a position better than that which he would have occupied had the contract been performed." Lindon, 49 So.3d at 305 (quoting Madison Fund, Inc. v. Charter Co., 427 F.Supp. 597, 608 (S.D.N.Y.1977) (applying Florida law) ).

The injured party may only recover those damages that naturally flow from the breach and can reasonably be said to have been contemplated by the parties at the time that the contract was made. It is not necessary that the parties have contemplated the exact injury that occurred as long as the actual consequences "could have reasonably been expected to flow from the breach."

Lindon, 49 So.3d at 306 (quoting Mnemonics, Inc. v. Max Davis Assocs., Inc., 808 So.2d 1278 (Fla. 5th DCA 2002) (internal citations omitted)).

The damages reasonably flowing from a breach can vary greatly depending on the factual circumstances surrounding the breach, and different methods of calculation may be employed to properly compensate a successful plaintiff. See Pathway Fin. v. Miami Int'l Realty Co., 588 So.2d 1000, 1005 (Fla. 3d DCA 1991) (holding that either reliance damages or...