Friday, February 27, 2015

Pay Your Rent, Clean Your Room

Walsh v. Cluba, 2015 VT 2

By Amy Davis

This is a straightforward landlord-tenant case with so many unnecessary twists and turns that would make for a good Pacific Heights sequel. Show of hands for those who remember Matthew Modine. Seeing no hands . . . the gist of this case is that it’s a landlord-tenant dispute, but the tenant becomes a corporation at some point, leaves the premises damaged, and gets sued for contract and tort problems. But, the lawyers have to amend the pleadings a couple of times before we know who gets sued for what. Clear as mud? Good. Here we go.

Plaintiff, landlord David Walsh, and defendant, tenant, Frank Cluba, enter into a three-year lease agreement back in 2004 where Walsh rents Cluba a commercial space on Church Street. Two months after they sign the agreement, Cluba and his business partner incorporate Good Stuff, Inc., an adult novelty shop (insert 50 Shades of Grey reference here). The lease expires in August 2007, but Good Stuff continues occupying the space and pays rent up until leaving in August 2009not an issue here because of a month-to-month provision of the lease. 

However, Walsh sues Cluba in January 2010, saying that Cluba defaulted on an extended lease agreement in effect through September 2011, and that he also left the premises messy and in need of repair. My initial question was: what kind of repairs does an adult novelty shop need after five years? In any event, Walsh wants Cluba’s money (and preferably by bank check or money order and not dirty cash from the register) for: unpaid rent, attorney’s fees, and the cost of repairs. Then, in November 2010, Walsh asks to amend the complaint to include Good Stuff as a defendant. Cluba does not oppose the motion, and the court grants it. (Note for fun that the trial court in this case is Judge Crawford, way back when he was “Judge,” before he was “Justice,” and before he was “Judge” again). The next month, Walsh files an amended complaint alleging that Good Stuff, through its agent Cluba, ratified the lease Cluba signed and then defaulted on an agreed extension of that lease.

So in August 2011, defendants change their mind and say that Walsh actually can’t sue Good Stuff and move for partial summary judgment to get the claims against Good Stuff dismissed. In January 2012, the trial court grants the motion and rules that Good Stuff had not signed the lease and that Walsh did not have anything in writing that bound Good Stuff to the lease. The court also rules that the successor liability doctrine is inapplicable, and that Walsh abandoned his ratification theory by neither raising it nor offering facts to support it. Therefore, “all contractual claims” against Good Stuff are dismissed.

Walsh is puzzled. He files a motion to clarify because the attorneys cannot agree as to whether the court’s order dismissed Good Stuff from the complaint entirely. Walsh also asks for a do-over to amend his complaint a second time to add a negligence claim against Good Stuff to seek damages for repairs: the rental space, just like this case, is dirty and messy. The defendants say no, the court says OK, and Walsh files a second amended complaint. All this paperwork over a three-year period must mean that the attorney’s fees are really adding up. Cha-ching!

A two-day jury trial in November 2013 ends with Good Stuff moving for judgment as a matter of law on the negligence claim. The court grants the motion ruling that the economic-loss rule does not apply to the tort claim because the dispute is completely covered by Walsh’s and Cluba’s contract for Cluba to leave the premises in the condition in which he took it. That’s the end of Cluba’s luck though: the jury awards Walsh about $10,000 in damages for breach of the lease agreement, then the trial court awards Walsh $44,600 in attorney’s fees.

So, Cluba is all kinds of upset and appeals. Cluba says Walsh should have never testified on the necessity and repair work done on the premises, and the trial court gave Walsh too much money for attorney’s fees. Walsh (through his recently-paid lawyer) cross-appeals, saying that the trial court erred first in dismissing the contractual claims against Good Stuff, and second, by granting Good Stuff judgment as a matter of law during trial on the negligence claim. The standard of review we’re dealing with is abuse of discretion.

The SCOV quickly dismisses Cluba’s evidentiary claim of error. Cluba states that Walsh’s testimony about the damage was not based on his own perceptions and thus violated the expert evidentiary rule. Cluba does not say what testimony specifically violates the rule, but the SCOV says it doesn’t matter: he loses anyway. Walsh testified from his own personal knowledge of the premises of when the defendants leased it, and when they left. He also personally audited the invoices for the work done to clean up and repair the damages after the defendant left. The SCOV says that all this is helpful lay testimony.

Cluba’s second claim is that the trial court gave Walsh way too much money for a variety of reasons. In particular: attorney’s fees. This is the point where everyone nodding off should perk back up if you like the trial court awarding you fees.

Cluba says, at the very least, $8,000 of those fees were for unnecessary and unsuccessful litigation against Good Stuff, and the rest of it is unreasonable given that this was a standard, simple case. The SCOV says that the ‘Merican rule is that the parties bear their own litigation costs. However, there was this little provision in the lease agreement that allows attorneys fees based on a breach of the agreement, provided the fees are reasonable. The trial court found that the hourly rate of Walsh’s attorney was reasonable for an experienced Vermont attorney, and that his billing record accurately reflected the number of hours spent on the case. As far as the fees for the claims against Good Stuff, the trial court says that it was appropriate for the attorney to attempt to keep Good Stuff in the case, and awarded the full amount of fees. So, any abuse of discretion? No.

The SCOV agrees, says the fees are reasonable and within the trial court’s wide discretion, and then gives many reasons why Cluba has to pay up: First, Cluba says the award should be reduced to the extent that he won on two issueskeeping Good Stuff out of the case, and Walsh’s claim that Cluba had agreed to a lease extension. However, Walsh was clearly the winner of the case due to the large compensatory award from the jury. Just because Walsh lost one theory of the case, doesn’t mean he lost the entire case. Second, just because Good Stuff was kicked out of the case, does not mean that Walsh’s attorney can’t get paid for the work to keep them in. The SCOV also notes that it would have been malpractice for him not to try to add Good Stuff into the case. Finally, the SCOV declines to do any math and reduce the fee to an amount proportionate to the award of damages. Cluba is out of issues, and he needs to cut a check.

Now Walsh wants to appeal some stuff too. He argues that the trial court erred in dismissing the contractual claims against Good Stuff back in January 2012. This again? Justice Skoglund is not in the mood. She writes, “[W]ith respect to Good Stuff, Walsh made the tactical decision to abandon his contractual claims and instead rely on a negligence claim of liability. He now seeks to backtrack from that strategy by claiming on appeal that the trial court erred in not addressing his ratification theory—even though he pointedly did not challenge the trial court’s ruling below in his motion to clarify.”

Walsh also claims that the trial court erred in dismissing his negligence claim against Good Stuff based on the economic-loss rule. The economic-loss rule is one that prohibits recovery in tort for purely economic losses. The determining factor is whether there is a duty separate and apart from a contractual duty. If the injury is to property that is the subject of a contract, it is considered a disappointed economic expectation and the relief is in contract law, not tort law. Here, not only were the damages to property that was the subject of a lease agreement, but the agreement specifically addressed the contractual remedy for any damage to the property resulting from the lease. Walsh and Cluba, as the SCOV says, were “legal strangers” and had no “special relationship” that would preclude the economic-loss rule. The SCOV adds one more dig in for Walsh: had he not abandoned his ratification theory, he may have been able to hold onto his contractual claims against Good Stuff. We call that, the Shoulda-Woulda-Coulda Doctrine.

The dissent (Justice Robinson) is not happy with the majority’s treatment of the economic-loss rule. The dissent says that the majority is “further muddying an already confused area of law.” The dissent points out that the “economic losses” to which the economic-loss rule applies are intangible economic losses, and not those losses of physical harm to persons or property. Justice Robinson acknowledges that the economic-loss rule maintains a distinction between contract and tort law, but now believes that the holding makes it so a person cannot have simultaneous duties in tort and contract in the same subject matter. To the case at hand, she says the majority makes a “misstep” invoking this rule in a setting where Walsh is not seeking damages for purely economic losses. For that alone, the dissent would reverse the trial court’s decision.

In short, Justice Robinson believes that the majority adopted a rule that “presumes that a contractual duty negates any pre-existing independent tort duty concerning the same subject matter.” However, the majority says there is no new approach, and the balance between tort and contract law is unchanged, so we should treat it exactly the same as before.

Whatever the case may be, had Cluba just listened to his mother and kept his room clean, it could have saved him years of litigation and over $50,000; a pretty big incentive for every renter out there to go wash your dishes and take out your trash.

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