Zeke Coffee, Inc. v. Pappas–Alstad P'ship

• Decision Date: 30 July 2015
• Docket Number: Court of Appeals No. 14CA0255
• Citation: 370 P.3d 261
• Parties: ZEKE COFFEE, INC., a Colorado corporation, and Darren Spreeuw, Plaintiffs–Appellees and Cross–Appellants, v. PAPPAS–ALSTAD PARTNERSHIP, Defendant–Appellant and Cross–Appellee.
• Court: Colorado Court of Appeals

370 P.3d 261

ZEKE COFFEE, INC., a Colorado corporation, and Darren Spreeuw, Plaintiffs–Appellees and Cross–Appellants,

v.PAPPAS–ALSTAD PARTNERSHIP, Defendant–Appellant and Cross–Appellee.

Court of Appeals No. 14CA0255

Colorado Court of Appeals, Div. III.

Announced July 30, 2015

Rehearing Denied September 24, 2015

Daniel J. Culhane, LLC, Daniel J. Culhane, Denver, Colorado, for Plaintiffs–Appellees and Cross–Appellants.

EasonRohde, LLC, David R. Eason, Bruce E. Rohde, Denver, Colorado, for Defendant–Appellant and Cross–Appellee.

Opinion by JUDGE DAILEY

¶ 1 In this landlord-tenant dispute, defendant, Pappas–Alstad Partnership, appeals the district court's restitutionary award of $167,024 plus statutory interest to plaintiffs, Zeke Coffee, Inc., d/b/a Perk Hill Cafe, and Darren Spreeuw, president of Zeke Coffee (collectively, Zeke). We affirm and remand for an award of attorney fees.

I. Background

¶ 2 The underlying facts of the case are fully set forth in Zeke Coffee, Inc. v. Pappas–Alstad Partnership, (Colo.App. Nos. 11CA0744 & 11CA2317, 2012 WL 1473340, Apr. 26, 2012)

(not published pursuant to C.A.R. 35(f) ) (Zeke I ).

¶ 3 As pertinent here, in March 2004, Zeke leased, for five years, a retail space from Pappas–Alstad to use as a coffee shop. In September 2008, Zeke notified Pappas–Alstad of its intent to exercise an option to extend the lease for an additional five-year term. Pappas–Alstad, however, said Zeke had breached a term of the lease and, after Zeke refused to cure the alleged breach, it notified Zeke that the lease had been terminated and converted into a month-to-month tenancy. In June 2009, Pappas–Alstad served a three-day demand for compliance or possession on Zeke, again alleging that Zeke had breached the lease. Zeke acted to cure the alleged breaches.

¶ 4 Several months later, Zeke filed an action in the district court seeking a declaratory judgment that the lease remained in effect and that Pappas–Alstad had breached it. In response, Pappas–Alstad served Zeke with a notice to quit under the forcible entry and detainer statute, section 13–40–107, C.R.S.2014

, and included in its amended answer a counterclaim seeking Zeke's eviction.

¶ 5 The district court entered judgment in favor of Pappas–Alstad on the counterclaim and issued a writ of eviction restoring possession of the property to Pappas–Alstad. After Pappas–Alstad successfully opposed Zeke's requests for a stay of execution of judgment, Pappas–Alstad evicted Zeke from the premises.

¶ 6 On appeal, a division of this court reversed and remanded the case with directions. See Zeke I

. The division held, among other things, that

• the district court erroneously determined that Zeke's alleged breaches of the lease supported Pappas–Alstad's rejection of Zeke's exercise of the five-year option on the lease;

• Zeke had properly exercised the option, meaning that the lease had not been converted to a month-to-month tenancy and was "in full force and effect on the date of judgment"; and

• Zeke was "entitled to an appropriate remedy for this situation."

Id. at 14, 21–22. The division remanded the case so the district court could determine an "appropriate remedy." Id. at 22.

¶ 7 On remand, the parties disagreed as to the appropriate remedy. Zeke argued that, because it had been wrongfully evicted, it should be awarded actual, consequential, and special damages for the loss of its business, as well as possible punitive damages; Pappas–Alstad argued that because, in evicting Zeke, it was relying on a validly entered but ultimately erroneous court order at the time of the eviction, Zeke should receive only restitution equal to any benefit realized by Pappas–Alstad.

¶ 8 In a written order, the district court determined that, because Zeke had lost its right to possession of the retail space as a result of an erroneous court order, restitution was the appropriate remedy. After an evidentiary hearing at which both parties presented expert testimony on the amount of restitution owed, the court awarded Zeke $167,024 (plus 8% statutory interest from the date of eviction), representing the value of (1) the rent Pappas–Alstad had received from its new tenant in the retail space; (2) the rent it would receive through the remainder of Zeke's lease term (i.e., through April 30, 2019), discounted at the rate yielded by United States Treasury Bills; and (3) the rent Pappas–Alstad would have received had the new tenant moved in and begun making payments immediately following the eviction.¹

¶ 9 Pappas–Alstad appeals and Zeke conditionally cross-appeals. In its appeal, Pappas–Alstad contends that the court erroneously calculated the amount of restitution Zeke was due by (1) basing it on actual and potential rental income from the premises and (2) using the Treasury Bill rate to discount the amount of future rent proceeds to present value. In its cross-appeal, Zeke contends that if we conclude that the court erred in determining the amount awarded, then, but only then, should we remand the case with directions to the district court to apply damages for a "wrongful eviction" as the appropriate remedy, not restitution.

II. Pappas–Alstad's Appeal: Calculating Restitution

A. Actual and Potential Rental Income as Bases for the Award

¶ 10 Pappas–Alstad first contends that the district court erred in using its actual and potential rental income from the premises as a measure of the appropriate restitution because this measure (1) did not "account for the full effect of the erroneous judgment" and the gain actually realized by Pappas–Alstad; (2) left Pappas–Alstad "worse off" than if the erroneous judgment had never occurred; (3) provided a corresponding windfall to Zeke; and (4) violates public policy. We are not persuaded.

¶ 11 Whether the district court has applied the correct legal standard in determining the availability of a particular equitable remedy is reviewed de novo. See Redd Iron, Inc. v. Int'l Sales & Servs. Corp., 200 P.3d 1133, 1136 (Colo.App.2008)

. But the power to determine the components of such a remedy is within the court's discretion. Beren v. Beren, 2015 CO 29, ¶ 12, 349 P.3d 233.

¶ 12 Because Pappas–Alstad challenges the amount of restitution awarded rather than the propriety of restitution as the appropriate remedy, we review the district court's award for an abuse of discretion. Id.

A court abuses its discretion only if its decision is manifestly arbitrary, unreasonable, or unfair, or is based on an erroneous view of the law. DeJean v. Grosz, 2015 COA 74, ¶ 14.

¶ 13 Restitution is an equitable remedy which provides "a measure of damages which restores a party to his/her prior status. It is available as a remedy when the injured party is due reimbursement for a benefit conferred upon another." Montoya v. Grease Monkey Holding Corp., 883 P.2d 486, 489 (Colo.App.1994)

, aff'd, 904 P.2d 468 (Colo.1995). It is used to " ‘deprive the defendant of benefits that in equity and good conscience he ought not to keep, even though he may have received those benefits honestly in the first instance, and even though the plaintiff may have suffered no demonstrable losses.’ " Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1063 (Del.1988) (quoting Mass Transit Admin. v. Granite Constr. Co., 57 Md.App. 766, 471 A.2d 1121, 1125 (1984) ).

¶ 14 " ‘A person who has conferred a benefit upon another in compliance with a judgment, or whose property has been taken thereunder, is entitled to restitution if the judgment is reversed or set aside, unless restitution would be inequitable.’ "

Beren, ¶ 47

(quoting Restatement (First) of Restitution § 74 (1937) ).

¶ 15 Where the judgment has been reversed or set aside on appeal, "comment m to [section 74 of the Restatement (First) of Restitution] provides that if the judgment creditor acted in good faith, the sale was properly conducted, and the property was acquired by a bona fide purchaser, the judgment debtor is entitled to recover only the proceeds from the sale, plus interest." Tuscany, LLC v. W. States Excavating Pipe & Boring, LLC, 128 P.3d 274, 281 (Colo.App.2005)

(emphasis added).

¶ 16 Relying on the rationale of Tuscany,

the district court in this case determined that "an equivalent approach—the proceeds from the [new tenant's] lease, plus interest—should apply here." It concluded that "the conditions for the application of Tuscany and comment m of the Restatement apply" because Pappas–Alstad had acted in good faith reliance on a presumably valid judgment for possession when it evicted Zeke and re-leased the premises to a bona fide lessee within six weeks of the eviction.

¶ 17 The court concluded that "[Pappas–Alstad]'s gain is what it has received from the lease proceeds from the new tenant ... up to the present, and what it will receive from leasing the Premises through the remainder of the term of [Zeke]'s lease," i.e., until May 2019, plus interest.

¶ 18 We perceive no error in this ruling.

¶ 19 If a judgment ordering an eviction is reversed on appeal, " ‘a party is in general entitled to restitution of all the things lost by reason of the judgment in the lower court; and, accordingly, the courts will, where justice requires it, place him as nearly as may be in the condition in which he stood previously.’ " Stockton Theatres, Inc. v. Palermo, 121 Cal.App.2d 616, 264 P.2d 74, 78 (1953)

(quoting Ward v. Sherman, 155 Cal. 287, 100 P. 864, 865 (1909) ) (cited with approval in PSM Holding Corp. v. Nat'l Farm Fin. Corp., 743 F.Supp.2d 1136, 1141–43 (C.D.Cal.2010) ).

¶ 20 But where, as here, a tenant has been erroneously evicted from a premises that has since been re-leased to a third party or sold, the court cannot equitably restore the exact thing lost by execution of the erroneous judgment, i.e., possession of the premises. See Munoz v. MacMillan, 195 Cal.App.4th 648, 124 Cal.Rptr.3d 664, 671–72 (2011)

. Thus, "for all practical purposes, the only appropriate remedy for vacating tenants who prevail on appeal, but who failed to obtain a stay,...