Pomeranz v. McDonald's Corp.

• Decision Date: 11 January 1993
• Docket Number: No. 91SC478,91SC478
• Citation: 843 P.2d 1378
• Parties: Theodore R. POMERANZ; Pomeranz Investment Company: Marvin L. Stone and Gerald S. Gray, Trustees; Jack and Mildred Zerobnick; David Pollock; Stephen Gordon; Estate of Ruth Stone; Agnete Cohen; Helen B. Barron; Beatrice Pomeranz; Lisa E. Feld; Tony R. Pomeranz; Alan Z. Pomeranz, the Owners, d/b/a Mesa Denver Associates, Petitioners, v. McDONALD'S CORPORATION, a Delaware corporation, Respondent.
• Court: Colorado Supreme Court

Page 1378

843 P.2d 1378

Theodore R. POMERANZ; Pomeranz Investment Company: Marvin

L. Stone and Gerald S. Gray, Trustees; Jack and Mildred

Zerobnick; David Pollock; Stephen Gordon; Estate of Ruth

Stone; Agnete Cohen; Helen B. Barron; Beatrice Pomeranz;

Lisa E. Feld; Tony R. Pomeranz; Alan Z. Pomeranz, the

Owners, d/b/a Mesa Denver Associates, Petitioners, v. McDONALD'S CORPORATION, a Delaware corporation, Respondent.

No. 91SC478.

Supreme Court of Colorado,

En Banc.

Jan. 11, 1993.

Law Offices of Roger L. Simon, Roger L. Simon, Denver, for petitioners.

Holland & Hart, John C. Tredennick, Jr., William E. Mooz, Jr., Denver, for respondent.

Justice ERICKSON delivered the Opinion of the Court.

The court of appeals in Pomeranz v. McDonald's Corp., 821 P.2d 843 (Colo.App.1991), reversed that part of the trial court's judgment awarding damages for future taxes and maintenance costs to a lessor for the breach of a commercial lease. The court of appeals found that the only evidence presented on the issue of future damages was speculative and based on hearsay. The court of appeals therefore concluded that the amount of future damages was not adequately proven. We granted certiorari and now affirm the judgment of the court of appeals as to future maintenance expenses, but reverse the judgment of the court of appeals as to future taxes. Accordingly, we return this case to the court of appeals with directions to remand to the trial court for a new trial on the amount of future taxes due the petitioners under the lease and for an award of nominal damages for breach of the maintenance provisions in the lease.

I

In 1963, the respondent, McDonald's Corporation, entered into a commercial lease agreement with Tellar Arms, Inc., the petitioners' predecessor-in-interest, for the lease of space in a shopping center in Grand Junction, Colorado. ¹ In May 1974, the petitioners and McDonald's mutually agreed to amend the lease to require McDonald's to pay taxes and maintenance costs in addition to rent. McDonald's remained in possession of the premises until February 1986, when it moved to another location. McDonald's breached the lease agreement in September 1986, when it was unable to sublease the property and ceased making payments to the petitioners under the lease, although it paid the taxes and maintenance costs until that time. The amount paid by McDonald's for taxes and maintenance is not in evidence.

The petitioners brought suit against McDonald's alleging that McDonald's default on its obligation to pay rent constituted a breach of the lease agreement. The remedy sought by the petitioners was a judgment for "all rent and other charges accruing under the lease." In addition to future rent and insurance, the petitioners sought payment of future taxes and maintenance expenses as "other charges accruing under the lease."

At the trial before the court, the petitioners presented the testimony of Theodore Pomeranz, the managing co-owner of the shopping center, as the sole evidence that "other charges" had accrued and would continue to accrue through the end of the lease term. Pomeranz testified that, in his opinion, future taxes on the property would amount to $48,363 through the end of the lease term. He arrived at this figure by taking the amount of the 1987 tax bill and calculating an annual tax increase of five percent based on inflation. ² Pomeranz also testified that, in his opinion, future maintenance expenses for the property would amount to $35,407, based on his estimate of $4,800 per year and an annual increase of five percent for inflation. ³ Pomeranz provided no supporting information on how he arrived at the $4,800 amount. ⁴ Moreover, Pomeranz was not qualified as an expert in either the estimation of inflation rates, property taxes, or maintenance expenses.

At the conclusion of the trial, the trial court held that McDonald's had breached the lease and was liable to the petitioners for damages, including future rent, insurance, taxes, and maintenance expenses. The trial court based its award of damages for future taxes and maintenance expenses solely on Pomeranz's testimony.

The court of appeals affirmed the trial court's determination that McDonald's had breached the lease and owed the petitioners damages. However, the court of appeals reversed that portion of the judgment awarding future taxes and maintenance expenses, concluding "that Pomeranz's testimony, much of which constituted hearsay and speculation [was] insufficient to support an award of damages for future ... maintenance, and taxes." Pomeranz, 821 P.2d at 848. ⁵ We agree with the court of appeals that the petitioners failed to present legally sufficient evidence to support the trial court's award of damages for future maintenance expenses and affirm that judgment. However, we disagree with the determination of the court of appeals that the petitioners failed to present legally sufficient evidence to support an award of future taxes. Accordingly, we affirm in part, reverse in part, and remand this case with instructions.

II

In a breach of contract action, a plaintiff may recover the amount of damages that are required to place him in the same position he would have occupied had the breach not occurred. Schneiker v. Gordon, 732 P.2d 603, 612 (Colo.1987); Taylor v. Colorado State Bank of Denver, 165 Colo. 576, 580, 440 P.2d 772, 774 (1968). However, damages are not recoverable for losses beyond an amount that a plaintiff can establish with reasonable certainty by a preponderance of evidence. Riggs v. McMurtry, 157 Colo. 33, 39, 400 P.2d 916, 919 (1965) (stating that the trier of fact may not base an award of damages on mere speculation, rather, the plaintiff must establish by a preponderance of the evidence that he has in fact suffered damage and that the evidence introduced provides a reasonable basis for a computation of damages); see also Bunch v. Signal Oil & Gas Co., 505 P.2d 41, 43 (Colo.App.1972) (holding that there must be sufficient competent evidence from which the trier of fact could estimate the amount of damages with a reasonable degree of certainty); Restatement (Second) of Contracts § 352 (1981) (damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty).

The "rule of certainty" most often arises in breach of contract cases involving lost profits, but the rule also applies to other claims for future losses. See Charles T. McCormick, Handbook on the Law of Damages § 28 (1935) [hereinafter McCormick]. We have never addressed the rule of certainty in cases involving future taxes or future maintenance expenses.

McDonald's claims that this case is governed by our decisions in lost profit cases. McDonald's asserts that the petitioners failed to prove the amount of future damages with adequate certainty because the petitioners did not present expert testimony regarding mill levies or property valuations, or the best evidence of either past, present, or future maintenance costs. See Tull v. Gundersons, Inc., 709 P.2d 940, 945 (Colo.1985) (stating that in proving the amount of damages for lost profits it is sufficient for a plaintiff to provide the best evidence obtainable under the circumstances). The petitioners, on the other hand, would interpret the rule of certainty as only requiring a plaintiff to prove the fact of future damages with certainty, which is undisputed in this case, and not also the amount of future damages. ⁶ See Tull, 709 P.2d at 943; Peterson v. Colorado Potato Flake & Mfg. Co., 164 Colo. 304, 309, 435 P.2d 237, 239 (1967). In applying the rule of certainty to the facts of this case, we disagree with both McDonald's assertion that a plaintiff is always required to present the best evidence obtainable, and also with the petitioners' oversimplification of the rule of certainty.

III

In a breach of contract action involving future damages, a plaintiff is required to prove both the fact of the injury and the amount of the loss. See, e.g., Tull, 709 P.2d at 943-45; John v. United Advertising, Inc., 165 Colo. 193, 197, 439 P.2d 53, 55 (1968); see also McCormick, at § 26 ("[t]he certainty rule, in its most important aspect, is a standard requiring a reasonable degree of persuasiveness in the proof of the fact and of the amount of the damage."). Because a plaintiff often faces tremendous practical difficulties in proving future damages, he should not be barred from recovery for failing to prove the amount of future damages simply because the amount of the loss cannot be determined with mathematical certainty. Riggs, 157 Colo. at 39, 400 P.2d at 919. In addressing the need for certainty and the practical difficulties of proving future losses with precision, we have struck a balance which allows a plaintiff a certain amount of leeway in proving the amount of the loss in situations where circumstances make proving the exact amount difficult or impossible. See Peterson, 164 Colo. at 310, 435 P.2d at 240.

In balancing the competing interests involved in a future damages case, we have adopted a rule requiring a plaintiff to provide the trier of fact with (1) proof of the fact that damages will accrue in the future, and (2) sufficient admissible evidence which would enable the trier of fact to compute a fair approximation of the loss. See id. at 310, 435 P.2d at 239; Tull, 709 P.2d at 945. This compromise allows courts to avoid harsh applications of the rule of certainty, while at the same time holding a high standard of certainty as an ideal. See McCormick, § 27.

In Tull, we addressed a situation in which the plaintiff provided detailed estimations of lost profits by submitting itemized costs of completion and expected profits. In finding that the plaintiff had sustained his burden of proof on the issue of lost profits, we held that such testimony was the best evidence obtainable under the circumstances. Tull, 709 P.2d at 945. In so holding, we did not...