Crystal Lake Ltd. v. Baird & Warner Residential Sales, Inc.

JUSTICE ZENOFF delivered the judgment of the court, with opinion.

Appeal from the Circuit Court of McHenry County. No. 10-LA-183 Honorable Michael T. Caldwell, Judge, Presiding. JUSTICE ZENOFF delivered the judgment of the court, with opinion.
Justices McLaren and Hutchinson concurred in the judgment and opinion.

¶ 1 Plaintiff, Crystal Lake Limited Partnership (CLLP)—the landlord—sued defendant, Baird & Warner Residential Sales, Inc. (B&W)—the tenant—for breach of certain commercial leases. B&W had for many years leased premises (the premises) in the Crystal Lake Plaza shopping center (the shopping center), in Crystal Lake, Illinois. CLLP alleged that B&W breached a covenant to restore the premises to their original configuration at the end of the lease terms and that such failure to restore, inter alia, also constituted a holdover under the leases. A jury found in CLLP's favor on two counts of its amended complaint, but the trial court subsequently granted B&W judgment notwithstanding the verdict (JNOV) on the holdover claim and ordered a new trial on damages for breach of the covenant to restore. Thereafter, B&W consented to the entry of judgment against it on the failure-to-restore count. CLLP appeals the JNOV relating to the holdover count. CLLP also appeals an order awarding it less than the total amount of attorney fees that it requested and orders denying its motions for prejudgment interest and sanctions. We affirm in part, reverse in part, vacate in part, and remand for further proceedings.

¶ 3 CLLP owns the shopping center, located at Route 14 and Keith Avenue in Crystal Lake. Madison Corporate Group (Madison) manages the shopping center. Thomas Eilers Sr. (Tom Sr.) and Thomas Eilers Jr. (Tom Jr.) were the Madison principals who dealt with B&W throughout the events leading up to the litigation. B&W is the oldest real estate brokerage firm in the Midwest, with offices in Chicago and throughout the suburbs. Tom Sr. had worked for B&W as a young man and had a prized personal relationship with the Baird family. ¶ 4 In 1988, B&W desired to move its office from an in-line space in the shopping center to a new "outlot" building fronting Route 14. The outlot building would afford more space and more public visibility. According to an existing floor plan (the original floor plan), the outlot building was divided into four rectangular spaces, designated as "A," "B," "C," and "D," with different dimensions. Each space had its own bathroom and utilities and was separately metered. At trial, Tom Sr. testified that he let a space in the outlot building to B&W because of his relationship with the Baird family. Evidence showed that spaces in the outlot building were more valuable to the shopping center if they were occupied by retail establishments rather than business offices.

¶ 6 On February 19, 1988, the parties entered into a five-year written lease for space "A," which was approximately 2465 square feet. According to the original floor plan, attached to the lease as an exhibit, space "D" was above space "A," and spaces "C" and "B" were to the left of space "A." ¶ 7 Paragraph 15 of the lease, titled "Surrender of Premises," provided in pertinent part that, upon the termination of the lease, the tenant would surrender the premises to the landlord "in good order, condition, and repair," except for ordinary wear and tear. That paragraph also provided that the tenant "shall remove all trade fixtures and other property." Paragraph 16 of the lease, titled "Holding Over," provided in pertinent part that, "[i]f Tenant holds possession of the Leased Premises after the termination of this Lease, whether by lapse of time or otherwise," the tenant would pay additional rent and other costs as liquidated damages. Paragraph 19, titled "Alterations and Additions," provided in pertinent part that, if the tenant had made any alterations or additions during the lease term, upon written notification by the landlord, the tenant shall restore the premises to the condition they were in before the lease commenced. ¶ 8 On June 28, 1993, the parties entered into the "First Amendment to Lease." In pertinent part, that amendment added approximately 786 square feet, designated as space "F," which was directly above space "A" and was the space formerly designated as space "C." On February 3, 1999, the parties entered into the "Second Amendment to Lease," which, in pertinent part, extended the lease of spaces "A" and "F" until May 31, 2004.

¶ 10 Also on February 3, 1999, the parties entered into a separate lease for the spaces then designated as "C" and "D," containing approximately 1977 square feet. Those areas had been designated as space "B" in the 1988 lease. The February 3, 1999, lease contained the same "Surrender of Premises," "Holding Over," and "Alterations and Additions" provisions as the 1988 lease. The original floor plan was attached to and incorporated into the 1999 lease.

¶ 12 On April 19, 2004, the parties entered into two separate leases, one for the spaces designated as "A," "B," and "D," consisting of 5228 square feet, and the second for space "C," containing approximately 1287 square feet. The parties treated the first lease as an extension of the prior leases. Again, the original floor plan was attached to and incorporated into the 2004 leases. ¶ 13 Under these combined leases, B&W was now renting the entire outlot building. The 2004 leases ended on May 31, 2009. Both leases contained the same "Surrender of Premises," "Holding Over," and "Alterations and Additions" provisions as the 1988 and 1999 leases. Over the years, to suit its needs and aesthetic requirements, B&W added square footage, demolished demising walls, furnished the interior of the premises, and placed exterior signage on the building. According to Tom Sr., for liability reasons, CLLP did not keep a set of keys to the premises.

¶ 15 In 2008, the Great Recession caused B&W to close offices throughout the suburbs and to lay off employees. B&W asked CLLP for a rent reduction or a smaller, in-line space. When the parties did not reach an agreement, B&W notified CLLP of its intention to leave the shopping center at the end of its leases. CLLP then invoked the "Alterations and Additions" provisions of the leases. CLLP demanded that B&W restore the premises to their prealteration, 1988 condition: four individual units, each with a separate bathroom and utilities and separately metered. When B&W ignored that demand and then vacated the premises as of May 31, 2009, CLLP, on June 3, 2009, invoked the "Holding Over" provisions of the leases and demanded a year's additional rent. CLLP also advertised the premises in the 2009 spring and fall editions of the Metro-Chicago Retail Space Guide. ¶ 16 There ensued almost a year during which the outlot building remained vacant while CLLP negotiated with B&W to restore the premises. CLLP had obtained a quote to do the restoration for approximately $100,000, but, upon learning of that quote, B&W obtained its own estimate to do the work for less and represented that it would do it. For instance, on June 19, 2009, Warren Habib, B&W's CFO, told Tom Jr. that "I am happy to work with you as it is reasonable. We got our own estimate and it would be substantially lower than what your contractor will charge you." Tom Jr. replied: "Your lower cost estimate *** is very good news." Tom Jr. asked Habib to send him the estimate and then stated that CLLP would need to approve any architectural drawings. When the parties still had not come to terms by mid-July 2009, Habib notified Tom Jr. that Steven Baird, B&W's CEO, "will be in touch with your dad to see if a reasonable solution can be worked out." The talks between Tom Sr. and Baird were not productive. On April 6, 2010, Habib offered Tom Jr. $25,000 in cash, "or we will do the work." CLLP rejected the offer of $25,000. However, B&W never commenced the work, nor did CLLP have the work done. Then, on April 23, 2010, Julie Ann's Frozen Custard (Julie Ann's) signed a lease for part of space "B" and built it out to its own specifications. In 2012, Check 'n Go also leased a part of space "B," along with a small portion of space "A."

¶ 18 On November 3, 2011, CLLP filed its amended complaint for breach of contract against B&W. Counts I, II, and III were brought in the alternative and alleged B&W's failure to restore the premises under the various leases. Count IV alleged that B&W's breaches, including its failure to restore the premises, return the keys, and remove the signage, constituted a holdover under the leases. Count V was brought in the alternative to count IV, alleging that B&W willfully deprived CLLP of access to the premises and seeking relief pursuant to section 9-202 of the Code of Civil Procedure (Code) (735 ILCS 5/9-202 (West 2010) (providing that a person who willfully holds over after the expiration of a lease term shall pay the landlord double the yearly rent)). Essentially, CLLP contended that the 2004 leases were an extension of all the prior leases. B&W denied the allegations and filed numerous affirmative defenses. Pertinently, B&W contended that CLLP violated the implied covenant of good faith and fair dealing and that a novation extinguished the 1988 and 1999 leases, leaving only the 2004 leases for the jury's consideration. Thus, B&W contended that it had no obligation to restore the premises to their 1988 condition. B&W also alleged that CLLP failed to mitigate its damages. Prior to trial, the court determined that, for breach of the covenant to restore, the measure of damages was the cost of repair.

¶ 21 In addition to the above, the record establishes the following. On February 2, 2004, B&W sent CLLP an e-mail asking for a proposal to extend its "current lease" and to "lease the additional square footage as well." The "additional square footage" referred to space "C," which was then occupied by a beauty shop. The parties came to terms that resulted in the two 2004 leases that expired on May 31, 2009, as noted above. ¶ 22 In October 2008, Michael Gallo, B&W's real estate broker, proposed to Tom Jr. that, upon the expiration of the leases the next May, B&W move into a smaller, in-line space and pay less rent or remain in the outlot building but occupy less square footage at reduced rent. Gallo ¶ 32 Both Tom Jr. and Tom Sr. testified that CLLP lost revenue as a result of B&W's failure to restore the premises before the termination of the leases. Real estate appraiser Michael MaRous testified that the value of the premises configured as four spaces was greater than its value configured as one space. With respect to the holdover claim, CLLP asked the jury for a year's combined rent under both 2004 leases plus passthrough charges for the common areas, taxes, and insurance, in the total amount of $227,720. ¶ 33 After the court denied B&W's motion for a directed verdict, B&W presented its case to the jury.

¶ 35 Arendt and Soraya Gallego, B&W's space planner, both testified that the original floor plan was sufficiently detailed to allow them to understand what was required to restore the premises. ¶ 36 Habib and Baird testified that they were not familiar with the restoration covenant in the leases. Baird testified that he had never heard of such a thing. Baird and Habib both testified that no one knew what the condition of the premises was in 1988 and, further, that CLLP's demand was to build the premises to current code. Baird testified that he was shocked when CLLP declared B&W a holdover tenant. According to Baird, B&W had timely vacated the premises and left them in broom-clean condition, as it had done with other leased premises. Baird acknowledged that B&W left its fixtures and signage, but he believed that this was how commercial leases were handled. He testified that he did not know that CLLP did not have a set of keys. Baird testified that the B&W Crystal Lake office employed approximately 40 brokers, each of whom had a key. He assumed that CLLP would simply change the locks. According to Baird, he was going through such a difficult time with the Great Recession's impact on his business that he decided to deal with CLLP's demands after B&W completed its move to a new location. ¶ 37 At the close of the evidence, B&W renewed its motion for a directed verdict, which the court denied.

¶ 39 Pertinent to this appeal, the court instructed the jury, over B&W's objection, that "a holdover tenant is one who fails to surrender possession to the landlord of the leased premises at the time and in the condition agreed on in the lease." The court further instructed the jury that "possession is the fact of having or holding property in one's power or the exercise of dominion over property. Actual possession or occupancy is not necessary to constitute retention of possession. Possession may be inferred from surrounding facts and circumstances."

¶ 41 The jury returned a verdict in favor of CLLP on its claim for breach of contract based on B&W's failure to restore the premises, and it assessed damages in the amount of $111,070.36. The jury also found in favor of CLLP on its claim for breach of contract based on holdover, and it assessed damages in the amount of $113,860. The jury found in B&W's favor on CLLP's holdover claim under section 9-202 of the Code. In addition, the jury answered special interrogatories consistently with its verdicts. Specifically, the jury found that B&W failed to prove any affirmative defenses. The trial court then entered judgment in CLLP's favor and against B&W in the amount of $224,930.36.

¶ 43 CLLP filed a petition for attorney fees and costs pursuant to a fee-shifting provision in the leases and also sought prejudgment interest pursuant to the leases. B&W filed a motion for a rule conditionally on those other matters so that its conditional rulings will take effect if the unconditional rulings are later reversed or vacated. Accordingly, the trial court conditionally ruled that B&W was entitled to a new trial on the holdover claim. ¶ 46 On January 2, 2015, the court again, at B&W's request, addressed the proper measure of damages on the failure-to-restore claim and this time held that the measure of damages on retrial would be the lesser of the cost of repair or the diminution in value of the premises. Then, on April 26, 2017, the court corrected its November 20, 2014, order to reflect that it granted the JNOV on the holdover claim because all of the evidence, when viewed in the light most favorable to CLLP, so overwhelmingly favored B&W that no contrary verdict could stand. ¶ 47 The court continued to a later date CLLP's attorney-fee petition and motion for prejudgment interest.

¶ 49 Following the court's grant of a new trial on damages for B&W's breach of the covenant to restore, B&W named new experts and the parties engaged in discovery. Then, on November 18, 2016, B&W moved to enter judgment against it and in CLLP's favor in the amounts of $111,070.36 for breach of the covenant to restore (the same as the jury's award) and $43,927.39 for the three months' lost rent that CLLP would suffer while restoring the premises. That figure was based on CLLP's expert's opinion. B&W represented that this unusual move was dictated by business judgment inasmuch as it would spend more retrying the case. The court granted the motion over CLLP's objection to the amount of lost rent and entered judgment against B&W accordingly.

¶ 51 On February 14, 2017, CLLP filed a motion for sanctions against B&W and David Shapiro, its attorney, pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013), which provides that a signature on a document constitutes a certification that the attorney or party signing the document has made reasonable inquiry into the facts alleged therein. CLLP alleged that B&W's motion for a JNOV violated Rule 137 because B&W's claim that its failure to restore the premises caused no diminution in value was "objectively unreasonable." CLLP argued that, after two years of litigation following the grant of a new trial on damages, the case "ended in the exact same place," with a judgment in CLLP's favor. CLLP requested an award of all of its attorney fees and costs incurred after October 30, 2014. The court denied the motion, noting that CLLP "misled" it into erroneously instructing the jury that the cost of repair was the measure of damages.

¶ 53 CLLP sought reimbursement from B&W for its attorney fees of over $500,000, pursuant to paragraph 33 of the leases, which provided that "[t]enant covenants and agrees to pay on demand Landlord's costs and expenses, including but not limited to [attorney] fees and court costs, incurred in enforcing any obligation of Tenant under this Lease." The court awarded CLLP $70,000, explaining that it was a "firm believer" that the amount of fees be proportionate to the amount recovered. The court also expressed its belief that "there is a prevailing party provision" in every fee provision, especially in "unilateral one way" provisions, "which would otherwise have no conditions or limitations whatsoever." ¶ 54 With respect to prejudgment interest, paragraph 19 of the leases, dealing with breach of the covenant to restore the premises, provided that the tenant shall reimburse the landlord for the cost of restoring the premises, with "interest thereon at the rate herein provided from the date of commencement of said work until paid." The rate provided in the leases was 10%. CLLP sought such interest on the $111,070.36 judgment from June 1, 2009 (the date the purported holdover tenancy commenced), to December 6, 2016 (the date the judgment was entered). CLLP also sought 10% interest on the sum of $43,927.39 (three months' lost rent) from September 1, 2009 (the end of the three-month period), until December 6, 2016 (the date the judgment was entered). CLLP requested total interest in the sum of $116,442.19. The trial court found that prejudgment interest was not owed, because the amount due to CLLP from B&W on the December 6, 2016, judgment was not "liquidated until [B&W] came in and paid" the judgment. With that, all matters were finally concluded, and CLLP filed a timely notice of appeal.

¶ 56 CLLP first contends that the trial court erred in granting the JNOV on its holdover claim. CLLP argues that the court used the wrong legal standard in ruling on the motion for a JNOV and that there was sufficient evidence to sustain the jury's verdict. B&W asserts that neither the language of the leases nor applicable Illinois law supports CLLP's theory that the failure to restore the premises constituted a holdover. Further, B&W claims that the court employed the correct legal standard in deciding the issue.

¶ 58 In granting the JNOV, the trial court found that the jury's verdict was against the manifest weight of the evidence. Then, in a revised order, the court struck the manifest-weight language and substituted the following: "The verdict of the jury was based upon evidence that so overwhelmingly favored the defendant that any verdict to the contrary cannot possibly stand." (Emphasis in original.) In so doing, the court orally acknowledged that it had intended to apply the JNOV standard in the original order but mistakenly announced the manifest-weight standard. The original order was interlocutory and could be corrected. See Leopold v. Levin, 45 Ill. 2d 434, 446 (1970) (interlocutory order may be modified at any time before final judgment). ¶ 59 A JNOV should be entered only when all of the evidence, viewed in the light most favorable to the nonmovant, so overwhelmingly favors the movant that no contrary verdict could stand based on the evidence. Northern Trust Co. v. University of Chicago Hospitals & Clinics, 355 Ill. App. 3d 230, 241 (2004). We review de novo a decision on a motion for a JNOV. Northern Trust, 355 Ill. App. 3d at 241. ¶ 60 A court cannot enter a JNOV if there is any evidence, together with reasonable inferences to be drawn therefrom, demonstrating a factual dispute, or if the credibility of the witnesses or the resolution of conflicting evidence is decisive to the outcome. Northern Trust, 355 Ill. App. 3d at 242-43. Here, the trial court was aware of the correct standard, as it found that all of the facts favored B&W. Accordingly, we reject CLLP's contention that the court applied the wrong standard.

¶ 62 Nevertheless, the record does not support the trial court's factual conclusions upon which it based its grant of the JNOV. Specifically, the record shows that the holdover period ended in April 2010, when CLLP leased the premises to Julie Ann's. CLLP did not rent to Check 'n Go until 2012, two years after the holdover period expired. Also, Arendt did not "bump into" the contractors remodeling the premises for Julie Ann's until June 2010, also after the expiration of the holdover period. Further, CLLP advertised the premises and entered into the lease with Julie 1056, 1061 (1991) (commercial tenant was a holdover tenant where it continued to conduct business from the subject premises after the expiration of its lease). Indisputably, B&W did not continue to do business out of the premises, and so did not actually hold possession. However, as detailed above, there are sufficient facts in the record for the jury to conclude that B&W nonetheless held possession constructively. At oral argument, B&W acknowledged that the issue of possession was a factual one for the jury to decide, thus conceding the existence of a factual dispute that defeated entry of a JNOV. See Mikus v. Norfolk & Western Ry. Co., 312 Ill. App. 3d 11, 21 (2000) (if the record discloses a substantial factual dispute arising from the evidence, the court has no power to grant a motion for JNOV).

¶ 69 The court conditionally ruled that B&W is entitled to a new trial on the holdover claim, based on an improper jury instruction. Pursuant to Illinois Supreme Court Rule 366(b)(2)(iv) (eff. Feb. 1, 1994), the reviewing court "may" review any conditional rulings made by the trial court. We elect to review this issue, as we determine that we must reverse the conditional ruling for a new trial and reinstate the jury's verdict. ¶ 70 The court instructed the jury that "a holdover tenant is one who fails to surrender possession to the landlord of the leased premises at the time and in the condition agreed on in the lease." B&W objected to this instruction and offered an alternative instruction without the "in-the-condition-agreed-on" language. The purpose of jury instructions is to convey to the jury the correct principles of law applicable to the evidence presented. Martoccio v. Western Restaurants, Inc., 286 Ill. App. 3d 390, 392 (1997). Each party is entitled to have the jury adequately instructed on his or her theory of the case, as long as the proposed instruction is supported by some evidence in the record. Martoccio, 286 Ill. App. 3d at 392. The trial court's decision on whether to instruct on a particular issue is reviewed for an abuse of discretion. Martoccio, 286 Ill. App. 3d at 392. ¶ 71 B&W argues that there was no evidence to support the proposition that it was a holdover tenant. As discussed above, there was ample evidence that B&W exercised control over the premises after the leases expired. B&W also argues that the failure to restore could not constitute a holdover under the leases. We disagree for the reasons stated above. Consequently, we hold that the jury was properly instructed. Accordingly, we reverse the JNOV, reverse the conditional ruling granting a new trial, reinstate the jury's verdict of $113,860, and enter judgment thereon in favor of CLLP and against B&W. As discussed below, we remand for further proceedings on the issue of CLLP's attorney fees. On remand, the court shall also address whether B&W is entitled to a setoff, of $43,927.39 in lost rent that it paid for its failure to restore the premises, against the $113,860 judgment.

¶ 73 Under the restoration covenant, "should Tenant fail to [restore the premises], Landlord may do so." The covenant further provided that "Tenant shall reimburse Landlord for the cost thereof as Additional Rent, with interest thereon *** from the date of commencement of said work until paid, which sum shall be due upon presentation of a statement therefor" from the landlord to the tenant. Again, the rate of interest provided in the leases was 10%. CLLP sought interest on the restoration judgment of $111,070.36 from June 1, 2009 (the beginning of the holdover tenancy) to December 6, 2016 (when the court entered judgment). CLLP also sought interest for the same period on the $43,927.39 for lost rent, for a total of $116,442.19. The court denied CLLP's motion on the basis that the amount owed was not liquidated (meaning that it was not certain how much was due) until B&W voluntarily paid the judgment. See Clark v. Dutton, itself. In answer to the question "You have not restored *** the premises to the way they looked *** in 1988, right?" Tom Sr. said, "That is correct." ¶ 77 CLLP argues that, if for any reason the lease terms do not control, it is entitled to 5% statutory interest. Section 2 of the Illinois Interest Act (Act) (815 ILCS 205/2 (West 2014)) provides that a creditor is allowed interest at the rate of 5% per annum for all monies after they become due on any instrument of writing. See SNA Nut Co. v. The Haagen-Dazs Co., 302 F.3d 725, 734 (7th Cir. 2002). Absent an express agreement of the parties, prejudgment interest is allowed by statute if the amount due is fixed or easily computed. Bank of Chicago v. Park National Bank, 266 Ill. App. 3d 890, 900 (1994). First, the terms of the lease control here, as the parties expressly agreed under what circumstances prejudgment interest would be payable. As discussed, CLLP did not meet the terms agreed upon. Second, the amount due was not fixed until the judgment was entered, nor was it easily computed until then. In these bizarre proceedings where B&W filed four posttrial motions, the court changed its mind three times about the proper measure of damages. Damages were not fixed, or even capable of computation, until B&W consented to the entry of judgment against it. Accordingly, we determine that the court did not err in denying prejudgment interest.

¶ 79 Next, CLLP argues that the trial court abused its discretion when it denied its motion for sanctions. CLLP maintains that the court's grant of a new trial on damages for B&W's failure to restore the premises was based on the false assertion in B&W's motion for a JNOV that its breach caused no diminution in the value of the premises. Then, CLLP asserts, after two more years of costly litigation, B&W asked the court to reinstate the jury's verdict. Rule 137 allows a court to award sanctions against parties who file documents that have no basis in fact or law. more can be read into it. It is also difficult to conclude that B&W brought the posttrial motion in bad faith given that the court granted it and then chided CLLP for misleading it as to the correct measure of damages. Baker is inapplicable. In Baker, counsel filed suit based on an unsigned, inoperable document. Baker, 323 Ill. App. 3d at 963. Accordingly, we determine that the court did not abuse its discretion in denying the motion for sanctions.