613 FAIRVIEW AVE v. PONG’S CORP., INC., 49728-6-I (Wash.App. 1-21-2003)

613 FAIRVIEW AVENUE, L.L.C., an Arizona limited liability company, Respondent/Cross-Appellant, PONG’S CORPORATION, INC., a Washington corporation, Appellant/Cross-Respondent.

No. 49728-6-IThe Court of Appeals of Washington, Division One.
Filed: January 21, 2003 DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION

[EDITOR’S NOTE: This case is unpublished as indicated by the issuing court.]

Appeal from Superior Court of King County, No. 002030657, Hon. Palmer Robinson, November 29, 2001, Judgment or order under review.

Counsel for Appellant(s), Philip A. Talmadge, Talmadge
Stockmeyer, 18010 Southcenter Parkway, Tukwila, WA 98188.

Counsel for Respondent(s), Michael D. Myers, Myers Parker, 1809 7th Ave Ste 700, Seattle, WA 98101.


Pong’s Corporation, Inc. (Pong’s), appeals a trial court’s decision about a commercial lease. It appeals on five grounds, claiming the trial court erred by (1) finding that Pong’s breached the lease; (2) awarding lost profits; (3) denying prejudgment interest on Pong’s liquidated damages award; (4) concluding that Pong’s waived entitlement to fees for late rent; and (5) awarding attorney fees to the respondent. The respondent, 613 Fairview Avenue, L.L.C. (Fairview), urges the court to affirm the trial court’s decision. Both parties seek attorney fees on appeal under a provision in the lease. We affirm and award attorney fees on appeal to Fairview.

Pong’s owned a commercial building that it leased to Fairview. Fairview intended to open a Castle Superstore, a retail business that offers a variety of sexually oriented videos, magazines, and adult products. In July 1998, Fairview signed a lease that provided an initial term of 10 years with three five-year options, and it initiated the process of making necessary tenant improvements by preparing architectural drawings, securing a general contractor, and setting a start date for construction. In August 1998, Pong’s blocked an entrance to Fairview’s parking lot with a locked chain and boarded up one of the doors to the building. Pong’s claimed that it did this to deter trespassers on the property and that the building remained accessible to Fairview through the main entrance door and an alley bay door. In September 1999, the parties disagreed about whether the lease agreement was valid, and Pong’s prohibited Fairview from making any tenant improvements. In October 1998, Pong’s issued a 30-day notice to quit. In response, Fairview sued for forcible detainer. During the initial litigation, Fairview stopped all tenant improvements because the lease was uncertain. In February 1999, the trial court found that (1) the written lease was valid and (2) Fairview had already initiated the process of making improvements when Pong’s repudiated the lease and sought to evict Fairview. It also found that Fairview did not establish the elements of forcible detainer. It declined to reach any breach of contract issues and awarded Fairview attorney fees. This court affirmed the decision on appeal. Fairview opened the Castle Superstore in April 2000.

In January 2000, Fairview filed this action, alleging that Pong’s breached the lease. Pong’s counterclaimed for past due rent, late charges on rent, and property taxes. The trial court found that (1) Pong’s actions breached the express terms of the lease and the implied covenant of quiet enjoyment and (2) Fairview was delayed for five months in improving the establishment. The court awarded damages to Fairview for lost profits caused by the five-month delay. Pong’s appeals that decision.

ANALYSIS I. Did Pong’s breach the lease?
In all tenancies, there is an implied covenant of quiet enjoyment of the leased premises.[1] The covenant of quiet enjoyment “secures the tenant from any wrongful act by the lessor which impairs the character and value of the leased premises or otherwise interferes with the tenant’s quiet and peaceable use and enjoyment thereof.”[2] When a lessor unlawfully locks out one with a right to possession, it breaches the implied covenant of quiet enjoyment.[3]

In this case, the trial court correctly found that Pong’s breached the lease for two reasons. First, it breached the express and implied terms of the lease by blocking the parking lot with a locked chain and boarding up one of the doors to the property after the parties signed the lease. Section 5.06 of the lease states the following: `Quiet possession. Tenant may freely occupy and quietly enjoy the Property for the full Lease Term, subject to the provisions of this lease, without interference from anyone claiming by, through or under Landlord.’ Fairview signed the lease in July 1998 and, from that date, it guaranteed Fairview the right to quietly enjoy the property without interference from Pong’s. Second, Pong’s breached the same express provision of the lease when it prohibited any tenant improvements on August 30, 1999. By that time, Fairview had started the building process, including but not limited to preparing drawings, seeking permits, and securing a contractor.

Pong’s asserts that Fairview breached the lease when it did not obtain written approval to make improvements and it caused delay by filing suit against Pong’s. Its argument misses the point. First, Pong’s does not explain why its own actions did not breach the lease, focusing on why its actions did not cause the delay in construction.[4] Second, it argues that the lawsuit Fairview filed caused construction delay and Pong’s actions were not the proximate cause of the delay. We disagree. Fairview filed suit because Pong’s breached the lease by prohibiting tenant improvements, attempting to repudiate the lease, and partially blocking access to the property. With Pong’s assertions that the lease was invalid unresolved, Fairview was reasonable in not taking a risk by making tenant improvements necessary to open for business until the lease was declared valid.[5] If Pong’s had not breached the express covenant of quiet enjoyment by interfering with access to the property, attempting to repudiate the lease, and prohibiting tenant improvements, Fairview would never have needed to file suit at all. Therefore, Pong’s breached the express and implied provisions of the lease, and its actions were the proximate cause of the delay.

II. Did the trial court err in awarding lost profits to Fairview?
In Washington, “lost profits are properly recoverable as damages when (1) they are within the contemplation of the parties at the time the contract was entered, (2) they are the proximate result of defendant’s breach, and (3) they are proven with reasonable certainty.”[6] “The usual method of proving lost profits is from profit history. . . . [W]here a plaintiff is conducting a new business with labor, manufacturing and marketing costs unknown, prospective profits cannot be awarded. This is the so-called new business rule and has long been the law of Washington.”[7] There is one recognized exception to the new business rule “when a reasonable expectation of damages can be made based on an analysis of the profits of identical or similar businesses operating under substantially the same market conditions.”[8] Expert testimony alone is a sufficient basis to award lost profits when the opinion is supported by tangible evidence with a substantial and sufficient factual basis.[9] Pong’s asserts the new business rule applies in this case, and Fairview was not entitled to recover lost profits. Fairview argues the new business rule does not apply in this case because the lost profits were reasonably calculated based upon testimony of an expert witness.

In No Ka Oi Corp. v. National 60 Minute Tune Inc., this court discussed the new business rule and its exceptions. We confirmed that a court could properly award lost profits to a new business when the plaintiff provided a reasonable basis for estimating the loss based on profits of identical or similar businesses operating in the vicinity under substantially the same market conditions.[10] However, we specifically declined to extend the requirement of `local comparables’ to national franchising: “When a franchiser is a national or regional franchisor with uniform advertising and quality control, and when there is available data on earnings and expenses and on failure and success ratios from similar locations, the franchisee can usually show lost profits with `reasonable certainty.”[11] In this case, Castle Superstore is a national and local franchisor, and Fairview’s expert witness presented evidence of lost profits upon which the trial court relied in awarding damages. Like the testimony in No Ka Oi, Fairview’s expert based his testimony on both the projected and actual profits of similar franchises in similar locations. This sort of evidence is precisely what we deemed sufficient to provide a reasonable basis for estimating loss.[12] In addition, the testimony in this case is clearly distinct from the expert testimony that the Washington Supreme Court rejected in Farm Crop Energy, Inc. v. Old National Bank of Washington.[13] In that case, a customer brought an action against a bank alleging that it breached a loan contract to build an ethanol plant. The court held that testimony of an inexperienced witness who “testified in generalities, without dollar amounts or percentages” and estimated an amount of output that no similar plant in Washington of which he was aware had ever produced was insufficient to establish lost profits with the required degree of certainty.[14]
The court summarized, “[T]he opinion as to anticipated profits came from a former bank employee who had no technical knowledge of ethanol plants. . . . He candidly admitted that his pro forma estimate of future profits was `an uneducated judgment.'”[15] The expert in this case suffers from none of these shortcomings. Fairview’s expert witness was the Chief Financial Officer of Castle Superstore’s entities, including Fairview. He was a certified public accountant in Arizona and Texas, and he was responsible for accounting and publishing financial reports for Castle Superstore’s entities. He had the expertise and past history of similar stores on which to make an educated judgment.

III. Did the trial court err in calculating damages?
The Court of Appeals reviews a trial court’s award of damages for abuse of discretion.[16]

1. Did the trial court err in failing to offset fixed expenses from Fairview’s net revenues in calculating damages?

Pong’s argues that Fairview’s net revenues should have been offset by fixed expenses, such as the amortization of tenant improvements and overhead of the parent company. Fairview asserts that its net revenues were not offset by fixed expenses because it paid these fixed expenses despite Pong’s breach; therefore, they do not represent costs avoided by the breach.

We conclude that the trial court properly decided not to deduct fixed expenses, including amortized improvements over the life of the lease or a proportional share of the parent company’s overhead. Pong’s fails to cite any authority supporting its argument, and it did not object at trial to exhibit 5 or 6, which listed Fairview’s actual profits during its operation and upon which the trial court relied when calculating damages.

2. Did the trial court err in calculating lost net revenue using Fairview’s actual profits one year from the date of breach?

Pong’s claims the trial court erred in calculating lost revenue using Fairview’s actual performance figures during the same months of operation in the following year because they are speculative and Fairview actually lost money during the first five months after it opened. Fairview asserts that the trial court properly awarded lost net revenue from the months it could not operate based upon its profits during those same months the following year because the numbers were actual, not speculative. Fairview would have operated in those months if Pong’s had not breached the lease, and the missed months are the most profitable in Castle Superstore’s seasonal business.

In this case, the trial court determined that Fairview’s lost profits equaled its net revenues for the five-month period it was delayed. It used the expert witness’ calculations of actual profits during the same five- month period of the following year to determine lost profits. The trial court explained its reasoning:

[The] Plaintiff urged that we go to the end of the lease period to determine the damages since they were entitled to the benefit of a mature lease. I find that approach not to be persuasive since I think it is just too speculative to go out any number of years in terms of anticipating what expenses, income, or profits will be. . . . . . . . My picking [these] numbers is because it seemed to me . . . they were the closest I could come to estimate the loss both in terms of taking into account the seasonal factors and also not having the plaintiff incur the start-up burden twice. I wasn’t willing to take it out a longer period of time to get more.

We find that the trial court did not abuse its discretion in basing damages for lost profits using the actual profits during the same months after one year of operation. It was reasonable to conclude that considering profits beyond that date would be speculative and considering profits prior to that date would result in Fairview’s having to incur the start-up burden twice.

3. Did the trial court err in finding the unpaid rent and taxes were not liquidated damages entitled to prejudgment interest?

A party is entitled to prejudgment interest on liquidated claims.[17]
A claim is liquidated when it is possible to compute the amount exactly without relying on opinion or discretion.[18] The public policy behind awarding prejudgment interest is that a person retaining money belonging to another should pay interest on that sum to compensate for the loss of the money’s use value.[19] Prejudgment interest on a liquidated claim is an element of damages based on sound public policy, not a penalty imposed on a defendant for wrongdoing.[20]
Washington trial judges have discretion to disallow prejudgment interest, and the denial is reviewed for abuse of discretion.[21]
Pong’s argues that the trial court erred in declining to award prejudgment interest on its liquidated damages because Pong’s was entitled to the use value on money that was clearly due to it. Fairview claims that the trial court did not allow prejudgment interest on these funds because they represented Fairview’s costs avoided, rather than affirmative recovery by Pong’s.

In this case, we conclude that the trial court did not abuse its discretion by refusing to award prejudgment interest to Pong’s for two reasons. First, the record supports Fairview’s assertion that the trial court did not award Pong’s an affirmative recovery but instead deducted the rent and taxes as operational costs avoided during the months that Pong’s breach prevented the store from operating. The trial court granted only one judgment, listing Fairview as the creditor and Pong’s as the debtor of that judgment. In addition, the findings of fact and conclusions of law specifically state that Fairview’s recovery `will be offset by the sum of’ the unpaid rent and taxes, and it concluded that Fairview was the prevailing party for purposes of attorney fees under the lease. These findings together with the trial court’s decision not to award prejudgment interest on a sum that is clearly calculated with exactness strongly suggest that the unpaid rent and taxes were not affirmative recoveries, but merely offset as costs Fairview avoided during the months that Pong’s actions prevented it from operating its store. Because only affirmative recoveries are entitled to prejudgment interest, the trial court properly declined to award them here. Second, the record shows that Fairview actually tendered the rent checks and Pong’s refused to accept them. Therefore, even if the award were an affirmative recovery, we could not conclude that the trial court abused its discretion in refusing to award prejudgment interest on the rent that Pong’s, by its own actions, refused to accept.

4. Did the trial court err in finding that Pong’s was not entitled to late charge penalties on rent?

Argument must be supported by citation to legal authority.[22] If no authority is cited, we may presume that counsel, after diligent search, has found none.[23]

Pong’s argues the trial court erred in finding that it waived its entitlement to late charges under the lease. It claims that Fairview only paid partial rent in July and August 1999 and paid the rent with Not Sufficient Funds (NSF) checks from November, 1998 through March, 1999.

Because in both situations Pong’s did not receive the rent within the 10- day period when rent was due, it argues that it is entitled to late charges for those months.[24] Fairview argues the trial court properly refused to award late charges on the checks that Pong’s refused to accept for September, October, November, and December of 1999. Regarding the checks that Pong’s refused to accept, the trial court stated that `since the tenant in most cases actually wrote the check and the landlord decided not to cash it consistent with its position that the tenancy was terminated, that they can’t do that and then invoke the penalty provision also.’ As to the partial payments and NSF checks, the trial court found that Pong’s had waived its right to obtain late charges because it presented no evidence of any demand for late payment. We reject Pong’s argument because it fails to discuss waiver or the standard of review of the finding and it fails to cite to any authority supporting its assertion that the trial court erred in finding that Pong’s waived its right to late charges.

IV. Did the trial court err in awarding Fairview’s attorney fees?
Parties generally bear their own costs of litigation unless a statute, contract, or recognized equitable rule authorizes the recovery of fees.[25] `If neither party wholly prevails then the party who substantially prevails is the prevailing party, a determination that turns on the extent of relief afforded the parties.’[26] Washington has adopted the lodestar method of calculating reasonable attorney fees.[27] `After the lodestar has been calculated, the court may consider the necessity of adjusting it to reflect factors not considered up to this point.’[28] A trial court’s determination of reasonable attorney fees will not be overturned absent an abuse of discretion.[29] To withstand appeal, a fee award must be accompanied by findings of fact and conclusions of law to establish a record for review. If it is not, remand for entry of findings relating to the calculation of the awards is the proper remedy.[30] Pong’s argues that some of the requested attorney fees are unreasonable and the trial court abused its discretion by failing to indicate how it arrived at the fee award of $24,500.

We conclude there is adequate record for review despite the lack of formal findings and conclusions. Fairview’s counsel submitted declarations and billing statements for the fees and costs associated with the litigation. Pong’s objected to portions of the billing, including the following: litigation consulting fees, fees for unproductive motions, legal research, secretarial time, non-specific entries for trial preparation, and postage and photocopying charges. The record demonstrates that even if the trial court accepted every one of Pong’s objections and deducted those items from Fairview’s total requested amount, the result falls within $1,000 of the amount actually awarded. A remand for formal findings and conclusions would waste time and simply cost the parties additional fees; therefore, we affirm the trial court’s award of fees and costs.

V. Attorney fees on appeal
A provision in a contract providing for the payment of attorney fees in an action to collect any payment due under the contract includes fees necessary both for trial and those incurred on appeal.[31] We award attorney fees to Fairview because it is the prevailing party on appeal.

BECKER and KENNEDY, JJ., concur.

[1] Wash. Chocolate Co. v. Kent, 28 Wn.2d 448, 183 P.2d 514 (1947).
[2] Cherberg v. People’s Nat’l Bank of Wash., 15 Wn. App. 336, 343, 549 P.2d 46 (1976), rev’d on other grounds, 88 Wn.2d 595, 564 P.2d 1137
[3] Olin v. Goehler, 39 Wn. App. 688, 692, 694 P.2d 1129 (citing Aldrich v. Olson, 12 Wn. App. 665, 667, 531 P.2d 825 (1975)), review denied, 103 Wn.2d 1036 (1985).
[4] Pong’s states that it chained the parking lot and blocked the door to keep out trespassers, but as Fairview correctly points out, `Pong’s remedy was to arrange a consensual understanding with Fairview to bring suit not to trespass on Fairview’s leasehold.’
[5] Fairview asserted that the company did not want to make further improvements until the lease was proven valid for fear that it would be unable to receive the benefits of the improvements.
[6] Tiegs v. Watts, 135 Wn.2d 1, 17, 954 P.2d 877 (1998).
[7] Larsen v. Walton Plywood Co., 65 Wn.2d 1, 16, 390 P.2d 677
(1964), adhr’d to by 65 Wn.2d 1, 396 P.2d 879 (1964).
[8] No Ka Oi Corp. v. Nat’l 60 Minute Tune, Inc., 71 Wn. App. 844, 849, 863 P.2d 79 (1993) (citing Larson, 65 Wn.2d at 16), review denied, 124 Wn.2d 1002 (1994).
[9] See id.; Larson, 65 Wn.2d at 19.
[10] No Ka Oi Corp. 71 Wn. App. at 849-50.
[11] Id. at 852.
[12] In No Ka Oi, this court affirmed the consideration of evidence almost identical to that in this case. The testimony was based upon `sales data from [the company’s] franchisees around the country, as well as [the company’s] own revenue projections . . . used to sell franchises in Hawaii.’ Id. at 853.
[13] Farm Crop Energy, Inc. v. Old Nat’l Bank of Wash., 109 Wn.2d 923, 750 P.2d 231 (1988).
[14] Id. at 929.
[15] Id. at 931.
[16] Staff Builders Home Healthcare, Inc. v. Whitlock, 108 Wn. App. 928, 33 P.3d 424 (2001), review denied, 146 Wn.2d 1019 (2002).
[17] Smith v. Olympic Bank, 103 Wn.2d 418, 425, 693 P.2d 92 (1985).
[18] Hansen v. Rothaus, 107 Wn.2d 468, 472, 730 P.2d 662 (1986).
[19] Buckner, Inc. v. Berkey Irrigation Supply, 89 Wn. App. 906, 916-17, 951 P.2d 338, review denied, 136 Wn.2d 1020 (1998).
[20] Colonial Imports v. Carlton N.W., Inc., 83 Wn. App. 229, 242, 921 P.2d 575 (1996).
[21] Litho Color, Inc. v. Pac. Employers Ins. Co., 98 Wn. App. 286, 991 P.2d 638 (1999).
[22] RAP 10.3(a)(5); Kagele v. Aetna Life Cas. Co., 40 Wn. App. 194, 196, 698 P.2d 90, review denied, 103 Wn.2d 1042
[23] RAP 10.3(a)(5); Roberts v. Atlantic Richfield Co., 88 Wn.2d 887, 895, 568 P.2d 764 (1977).
[24] Pong’s references the following lease provision:

Section 4.05 Late Charges. Tenant’s failure to pay rent promptly may cause the Landlord to incur unanticipated costs. Therefore, if Tenant has not remitted any rent payment within ten (10) days after it becomes due, Landlord may collect a late charge equal to five percent (5%) of the overdue amount. . . .

[25] Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 280-81, 876 P.2d 896
[26] Marassi v. Lau, 71 Wn. App. 912, 916, 859 P.2d 605 (1993) (citing Rowe v. Floyd, 29 Wn. App. 532, 535 n. 4, 629 P.2d 925 (1981)).
[27] Brand v. Dept. of Labor Indus., 91 Wn. App. 280, 290, 959 P.2d 133 (1998), rev’d on other grounds, 139 Wn.2d 659, 989 P.2d 1111
[28] Bowers v. Transamerica Title Ins. Co., 100 Wn.2d 581, 598, 675 P.2d 193 (1983).
[29] Rainier Nat’l Bank v. Lewis, 30 Wn. App. 419, 424, 635 P.2d 153
[30] Mahler v. Szucs, 135 Wn.2d 398, 434-35, 957 P.2d 632, 966 P.2d 305
[31] Granite Equip. Leasing Corp. v. Hutton, 84 Wn.2d 320, 327, 525 P.2d 223 (1974).