Missouri Baptist Hospital v. United States

• Decision Date: 20 April 1977
• Docket Number: No. 801-71.,801-71.
• Citation: 555 F.2d 290
• Parties: MISSOURI BAPTIST HOSPITAL v. The UNITED STATES.
• Court: U.S. Claims Court

555 F.2d 290

MISSOURI BAPTIST HOSPITAL v. The UNITED STATES.

No. 801-71.

United States Court of Claims.

April 20, 1977.

Jack Rephan, Washington D.C., atty. of record, for plaintiff. Danzansky, Dickey, Tydings, Quint & Gordon, Washington, D.C., and Robert W. Copeland, Clayton, Mo., of counsel.

John E. Lindskold, Washington, D.C., with whom was Asst. Atty. Gen., Peter R. Taft, Washington, D.C., for defendant.

Before NICHOLS, KUNZIG and BENNETT, Judges.

ON PLAINTIFF'S AND DEFENDANT'S EXCEPTIONS TO TRIAL JUDGE's OPINION

KUNZIG, Judge:

This suit seeks to recover damages emanating from a lease by plaintiff, Missouri Baptist Hospital (Missouri Baptist) to defendant, of certain real property located in the City of St. Louis, Missouri. This case was heard before Trial Judge Thomas J. Lydon, who has submitted a recommended decision and conclusion of law, proposing a recovery for Missouri Baptist of $120,292, based on the Government's failure to make repairs to the building at the termination of the lease. Recovery was denied to the Government for its two asserted counterclaims. A belated claim by the plaintiff was also denied. Both parties excepted to the trial judge's opinion.

After briefing and oral argument, it is determined that we cannot adopt the full decision recommended by the trial judge, as we find the damages to have been reached under an erroneous legal standard. We hold that where the cost of repair of leased premises exceeds the diminution of the leasehold's fair market value, it is error to apply as the measure of damages owed the lessor, the "cost of repair" standard rather than the diminution in value standard. We further hold that plaintiff had the burden of proof in this case to show not only the cost of repairs, but also the diminution in fair market value, so as adequately to prove his true damages. Plaintiff failed in this regard, and cannot recover.

That portion of the trial judge's decision denying defendant's counterclaims and denying plaintiff's belated claim is adopted by the court and included with this opinion, infra.¹

In 1958, prior to the execution of the lease in question, plaintiff operated a hospital in the downtown area of the City of St. Louis. Because of the declining condition of the neighborhood, the age of the building, and the expense of renovation, plaintiff built a new hospital in the suburbs. In early 1965, plaintiff began to phase out the old hospital. By December 31, 1965, the old hospital was vacated and remained vacant until July 1, 1966. Plaintiff was unsuccessful in attempting to sell the property.

In October 1965, the Job Corps, Office of Economic Opportunity (OEO) began studies to determine the suitability of the old hospital as a site for a Job Corps Center for Women. Although the building had its shortcomings, in June 1966, OEO finally decided to utilize the old hospital. OEO entered into a cost-plus type of contract with Delta Corporation (Delta) to operate a Women's Job Corps Center. In June 1966, Delta leased the old hospital from plaintiff at an annual rental of $125,000 for a term of 38 months, ending August 31, 1969. Delta spent over $600,000 in repairing and rehabilitating the building. During the period the Center was operating, the maintenance and repair costs were extremely high — between $75,000 and $80,000 per year because of the age of the building.

The Job Corps Center for Women was closed in June 1969. Delta assigned the lease to the Department of Labor (Labor) which had absorbed this portion of OEO. Plaintiff and Labor amended the lease to provide for a month-to-month tenancy, commencing September 1, 1969, at a reduced rental. The building was used for temporary storage of Job Corps personal property.

In early January 1970, Labor decided to terminate the lease and vacate the building by January 31, 1970. Some areas of the building were not adequately maintained and repaired and, therefore, at the termination of the lease, the building was not delivered to plaintiff in good condition, ordinary wear and tear excepted, as required by the lease provisions.

Plaintiff brought this action to recover damages arising from defendant's failure to deliver the premises in good condition, ordinary wear and tear excepted, at the termination of the lease. Plaintiff alleged in the petition that defendant's breach of the lease damaged plaintiff's property "as a result of which the value of such property was diminished by the sum of One Million Dollars * * *" (Petition, p. 9) (emphasis added).

The trial judge, applying the cost of repair as the measure of damages, held that plaintiff was entitled to recover $120,292.²

In reaching this award, the trial judge stated that plaintiff's witness did not take into consideration in his repair cost estimate any allowance for reasonable wear and tear arising from the use of the building as contemplated by the lease. Consequently, the repair estimate figure was reduced by fifty percent (50%) as an allowance for reasonable wear and tear. Plaintiff contends that the finding that plaintiff's witness failed to take wear and tear into consideration was contrary to the evidence in the record. Alternatively, plaintiff urges that even if the witness did not take wear and tear into consideration, the use of a 50% reduction factor was improper.

From our analysis of the record, it is conceivable that plaintiff's exceptions contain certain merit. However, since we hold for the Government on the issue of burden of proof, and that in this case, diminution of value is the proper measure of damages, we need not reach plaintiff's exceptions.

This brings us to defendant's exceptions. The Government maintains that the proper measure of damages in this case is not the "cost of repair," but diminution in the fair market value caused by the acts of the defendant.

The Government further argues that plaintiff has failed to establish by a preponderance of the evidence that the fair market value of the leasehold property was diminished by the Government's failure to abide by the terms of the lease. The Government introduced expert testimony that the property had no value on January 31, 1970.³ Since the defendant also argues a total failure of proof by the plaintiff of value of the property on June 24, 1966, defendant alleges that plaintiff cannot show it actually suffered damage by virtue of defendant's breach of the lease.⁴

The nature of the Government's two counterclaims and the plaintiff's belated additional claim are adequately explained and dealt with by the trial judge, and that portion of his opinion dealing with these issues is printed after the Government's principle exceptions are reviewed in full.

Preliminarily, the Government has conceded that it breached, in part, various provisions of the lease.⁵ We need not spell out in detail each of these infractions — suffice it to say that the Government failed to return the property to the lessor in the manner and condition prescribed by the lease.

The Government relies on cases such as Bowes v. Saks & Co., 397 F.2d 113 (7th Cir. 1968); Dodge Street Building Corp. v. United States, 341 F.2d 641, 169 Ct.Cl. 496 (1965); Spitzel v. United States, 146 Ct.Cl. 399 (1959); Realty Associates, Inc. v. United States, 138 F.Supp. 875, 134 Ct.Cl. 167, (1956); and Eaddy v. United States, 139 F.Supp. 49, 134 Ct.Cl. 338 (1956) to support its contention that the measure of damages for breach of a covenant to return the leased premises to the lessor in its original condition, is not the cost of repair where such cost exceeds the diminution in fair market value of the premises.

Plaintiff strenuously urges that these cases concern cost of restoration clauses and not cost of repair clauses; that costs to restore are not the same as costs to repair premises; and that a contrary rule should apply in repair cases. We disagree, and hold for defendant except with regard to its two counterclaims, which we deny pursuant to the trial judge's opinion, infra.

I.

The overall purpose of the aforementioned measure of damages rule, as we see it, is to avoid windfall recoveries. This was well stated in Associated Stations, Inc. v. Cedars Realty & Development Corp., 454 F.2d 184, 188 (4th Cir. 1972).

The object of damages in a contract case is to restore the plaintiff to the position he would have been in had the contract not been breached. (Footnote omitted.) The "cost of restoration" method is one convenient way of determining the amount of damages to be awarded the plaintiff where a breach had occurred. There are, however, certain situations where this method of computing damages does not restore the plaintiff to the position he would have been in had the contract not been breached, but rather places him in a better position, thus providing him with a windfall. In those cases, courts have resorted to alternative methods of computing damages in order to insure that, as far as possible, the plaintiff neither loses nor benefits from the breach. * * *

The purpose of avoiding windfall recoveries is no less well served in a cost of restoration situation than in a cost of repair situation. A familiar example will illustrate. A broken $10 watch might take $30 worth of repair work to fix, whereas its diminution in value could at most be $10. A $30 recovery from an imaginary watch-lessee who caused the watch to break could inspire the plaintiff to discard the broken watch, purchase a new one for $10, and realize a windfall of $20.

We note that the authorities have in the past used repair and restoration interchangeably. In Associated Stations, Inc. v. Cedars Realty & Development Corp., supra at 186, n.3, for example, the terms of the lease clearly provide that the lessee would be responsible for the costs of repair. Yet in his opinion, Judge Winter speaks of "cost of restoration" as being subject to a ceiling set by "diminution in market value."

In Bowes v. Saks & Company, 397 F.2d 113, 116-17 (7th Cir. 1968), a...