Roche Diagnostics Operations, Inc. v. Marsh Supermarkets, LLC , 987 N.E.2d 72 ( 2013 )

FOR PUBLICATION
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
GEORGE T. PATTON, JR. ROBERT F. WAGNER
BRYAN H. BABB A. RICHARD M. BLAIKLOCK
Bose McKinney & Evans, LLP JASON M. LEE
Indianapolis, Indiana WANDINI B. RIGGINS
Lewis Wagner, LLP
Indianapolis, Indiana
Apr 01 2013, 8:38 am
IN THE
COURT OF APPEALS OF INDIANA
ROCHE DIAGNOSTICS OPERATIONS, INC., )
)
Appellant-Defendant, )
)
vs. ) No. 29A02-1201-PL-4
)
MARSH SUPERMARKETS, LLC, )
)
Appellee-Plaintiff. )
APPEAL FROM THE HAMILTON SUPERIOR COURT
The Honorable William J. Hughes, Judge
Cause No. 29D03-0812-PL-1481
April 1, 2013
OPINION - FOR PUBLICATION
RILEY, Judge
STATEMENT OF THE CASE
Appellant-Defendant, Roche Diagnostics Operation, Inc. (Roche), appeals the trial
court’s judgment in favor of Appellee-Plaintiff, Marsh Supermarkets, LLC (Marsh).1
We affirm.
ISSUES
Roche raises three issues on appeal, which we restate as:
(1) Whether the trial court erred by denying its cross-motion for summary
judgment.
(2) Whether the trial court erred in granting judgment to Marsh based upon its
conclusion that Roche breached the parties’ sublease.
(3) Whether the trial court’s award of damages to Marsh was based on
speculation.
FACTS AND PROCEDURAL HISTORY
Marsh is a wholly owned subsidiary of MSI Crosspoint Indianapolis Grocery,
LLC (MSI). Marsh has its headquarters at 9800 Crosspoint Boulevard, a four-story
office building located in Fishers, Indiana (the Building). MSI owns the Building and the
land (the Premises). Pursuant to a lease dated November 22, 2006 (Prime Lease), Marsh
leases the Premises from MSI, with a right to possess and sublease the Building until
2026. In 2006, MSI mortgaged the Premises to the Bank of America (BOA).
1
We held oral argument in this case on December 3, 2012 at the Indiana Court of Appeals Courtroom in
Indianapolis, Indiana. We thank and commend the parties for their excellent advocacy.
2
In 2007, Roche Diagnostics Corporation, a subsidiary of Roche located in Fishers,
Indiana, sought additional space and issued a request for proposals (RFP). Marsh
responded to the RFP and offered to sublease the Premises. Its term sheet disclosed that
it leased the Premises, which was subject to a mortgage. Marsh also offered to use
“commercially reasonable efforts” to provide a non-disturbance and attornment
agreement. (Appellant’s App. 657). On January 31, 2008, the parties executed a letter of
intent, which contained Marsh’s agreement to provide “an acceptable, Subordination,
Non-Disturbance and Attornment Agreement (SNDA) as an exhibit to the Sublease.”
(Appellant’s App. pp. 664-65).
On March 28, 2008, the parties executed a sublease (Sublease) wherein Roche
subleased the second through fourth floors of the Building as well as non-exclusive use of
other parts of the Building. Section 1.02 of the Sublease specified the term as
commencing on April 1 and expiring on November 21, 2026. Section 1.032 provided
Roche with options to terminate at five-year anniversaries of the term, with twelve
months’ prior written notice and if Roche was not in default.
Pursuant to Section 2.01, Roche’s obligation to pay rent commenced on January 1,
2009. In addition to other costs, operating expenses, and fees, Roche agreed to pay an
annual base rent in equal monthly installments. The amount of annual base rent was
$2,513,841 from January 1, 2009 to December 31, 2013; $2,587,777.50 from January 1,
2
All citations herein are to either Articles or Section are to the Sublease unless otherwise indicated.
3
2014 to December 31, 2018; and $2,735,650.50 from January 1, 2019 to November 21,
2026.
Section 17.01 concerned two key ancillary documents: a subtenant recognition
agreement (SRA) and an SNDA. Generally, an SRA is an agreement between the
landlord and the subtenant, wherein the landlord agrees to honor the subtenant’s rights in
the event that the sublessor defaults under its lease with the landlord. The SNDA is an
agreement between the subtenant and a mortgagee, whereby the mortgagee recognizes
the subtenant’s rights in the event that the landlord defaults on its obligations under the
mortgage.3 In this particular case, Roche would agree to be bound to the terms of the
Prime Lease. It should be noted that although Marsh consented to the SRA, it is not a
party to the SNDA; both documents are essentially between third parties to the Sublease.
The relevant text of Section 17.01 provides:
17.01 Subordination. […]. [Marsh] shall use commercially reasonable
efforts to obtain a subordination, non-disturbance and attornment
agreement in form as may be reasonably approved by [Roche] and [Marsh],
from [BOA]. […].
[Marsh] and Roche shall cooperate in order to obtain a Subtenant
Recognition Agreement (“SRA”) from [MSI] and a Non-Disturbance and
Attornment Agreement [“SNDA”] from [BOA]. [Roche] agrees that it
3
The Seventh Circuit Court of Appeals described the features of an SNDA in a recent case:
The subordination provision subordinates the lease to the mortgage; the attornment provision requires that the tenant
agree to continue the tenancy if as a result of the default and foreclosure there is a new landlord; and the
nondisturbance provision assures the tenant that his lease will continue in the event of foreclosure. But nowadays,
despite the name, an SNDA often and in this case contains additional provisions for the protection of the lender or
the tenant.
CW Capital Asset Management, LLC v. Chicago Properties, LLC, 610 F.3d 497, 502-3 (7th Cir. 2010).
4
shall be a condition of such SRA and such [S]NDA that [Roche] agrees to
be bound by the provision of the Prime Lease in the event of a termination
of the Prime Lease or a foreclosure of the Mortgage. In the event that the
SRA and the [S]NDA, in form and substance reasonably acceptable to
Landlord, Tenant, and Prime Landlord or Prime Landlord’s Mortgagee, as
the case may be, is not fully executed and delivered to Tenant on or before
April 25, 2008, Tenant shall have the right, exercisable on or before May
15, 2008 to terminate the Lease upon prior written notice to Landlord.
(Appellant’s App. p. 119).
The parties engaged in efforts to obtain the SRA4 and the SNDA. Roche’s outside
counsel, Jeffrey Abrams (Abrams), exchanged drafts of the SNDA with Marsh’s outside
counsel, Stephen Sussman (Sussman). Marsh’s general counsel, Laura Gretencord
(Gretencord), and Roche’s general counsel, Steve Oldham (Oldham), also participated in
the process. On March 26, 2008, Abrams provided markups after rejecting Marsh’s
proposed draft SNDA. On April 14, 2008, Abrams checked on the status of the SNDA.
Gretencord replied that she would send the marked up SNDA to BOA. Because the
SNDA would not be obtained by April 25, 2008, the parties agreed to extend the
deadline.
On April 24, 2008, the parties executed the following letter amendment to the
Sublease (First Extension) with the following language:
The second paragraph of Section 17.01 [] provides that [Marsh] and
[Roche] shall cooperate in order to obtain a [SRA] from [MSI] and a
[SNDA] from [BOA], on or before April 25, 2008, failing which [Roche]
shall have the right, exercisable on or before May 15, 2008, to terminate the
[Sublease] as of such date.
4
The SRA was executed by the parties on April 24, 2008. Its validity is not disputed by the parties.
5
[Marsh] and [Roche] have agreed that the date by which the SRA
and the [S]NDA shall be obtained is hereby extended to May 15[], which
date shall remain as the date on or before which the [Sublease] may be
terminated. All other terms, covenants and conditions of the [Sublease]
shall remain in full force and effect and unchanged hereby.
(Appellant’s App. p. 160).
On May 2, 2008, the draft SNDA was sent by MSI’s attorney to BOA’s legal
department.5 On May 14, 2008, Marsh requested another extension, and on May 15,
2008, the parties executed a second extension letter (Second Extension), containing the
following:
The second paragraph of Section 17.01 [] provides that [Marsh] and
[Roche] shall cooperate in order to obtain a [SRA] from [MSI] and a
[SNDA] from [BOA], on or before April 25, 2008, failing which [Roche]
shall have the right, exercisable on or before May 15, 2008, to terminate the
[Sublease] as of such date.
[Marsh] and [Roche] have agreed that the date by which the SRA
and the [S]NDA shall be obtained is hereby extended to May 30[], which
date shall be the date on or before which the [Sublease] may be terminated
if said SRA and the [S]NDA are not obtained. All other terms, covenants
and conditions of the [Sublease] shall remain in full force and effect and
unchanged hereby.
(Appellant’s App. p. 162).
On May 16, 2008, BOA’s representative sent a revised SNDA (the May 16
SNDA) to Marsh. BOA had removed Roche’s twelve month liability limit from the draft
and would execute the SNDA as revised. On May 20, 2008, Abrams said this was
5
At some point, BOA had placed its mortgage on the secondary market as part of a pool of mortgages which were
securitized into mortgage backed securities (MBS). BOA became trustee and master servicer under this MBS
scheme and CW Capital Asset Management, LLC became the special servicer. The servicer collects individual
mortgage payments and deals with the individual borrowers. This arrangement is reflected in the text of Section
17.01, wherein a “servicer” is included in the definition of “Mortgagee,” i.e., BOA.
6
unacceptable and Gretencord suggested that Abrams negotiate with BOA to obtain its
desired terms. On May 22, 2008, Abrams reported to all parties that he had contacted
BOA regarding the twelve-month liability limit.
On May 28, 2008, Abrams emailed Gretencord to follow up and suggested that the
parties execute a further extension; however, Abrams noted that Roche could not
continue waiting for the SNDA. On May 29, 2008, Gretencord prepared another
extension. Meanwhile, Roche internally decided it no longer wanted to sublease the
Building and Oldham prepared a termination letter. On May 29, 2008, Oldham sent
Roche’s termination letter to Marsh via overnight courier. The termination letter was
received in the Marsh mailroom at 10 a.m. the following day. After learning Roche’s
position from Oldham directly, Gretencord contacted BOA to obtain a SNDA containing
a twelve month liability limit. BOA and CW Capital Asset Management, LLC, the
special servicer, agreed and the SNDA (the May 30 SNDA) was executed and forwarded
to Marsh, which hand delivered it to Roche at 4:57 p.m., along with a cover letter stating
that Roche’s termination was null and void.
On June 12, 2008, Roche sent Marsh its response, denying that it was in default
and asserting that it had validly exercised its right to terminate. On June 24, 2008,
Gretencord sent Roche a letter advising that Roche was in default of the sublease.
On July 8, 2008, Marsh filed its Complaint against Roche alleging breach of
contract, which it later amended. On September 18, 2008, Roche filed its Answer and
Counterclaim, which it later amended. On February 23, 2009 and March 30, 2009,
7
Marsh and Roche, respectively, moved for summary judgment. On October 19, 2009, the
trial court denied both parties’ motions for summary judgment. Although the trial court
declined to rule on the parties’ differing interpretations of Section 17.01 and the
Extensions, it found that a genuine issue of material fact “whether each party discharged
its half of the mutual obligation to cooperate in acquiring the [S]NDA.” (Appellant’s
App. p. 28).
From September 26, 2011 through October 4, 2011, a bench trial was held. On
December 6, 2011, the trial court granted Judgment to Marsh. The trial court concluded
that the Sublease and Extensions were valid and that the Extensions eliminated Roche’s
unilateral termination option under Section 17.01. As a result, Roche was obligated to
wait until May 30, 2008 to receive an SNDA. However, by refusing to accept either the
May 16 SNDA or the May 30 SNDA, the trial court concluded that Roche breached the
Sublease. Referring to the default provisions in Section 16.01, the trial court further
concluded that Roche was in default.
Next, the trial court determined that both common law and Article 16 provided
“Marsh [with] several cumulative and non-exclusive remedies as a result of Roche’s
default.” (Appellant’s App. p. 64). Under common law, the trial court concluded that a
lessee in breach “is liable for all rent remaining under a lease after the lessee vacates the
property.” (Appellant’s App. p. 64). Under Section 16.02, should Roche default, Marsh
was entitled to affirm the lease and claim damages, included the balance of rental
payment due under the Sublease. Concluding that Section 1.03 unambiguously provided
8
the term of the Sublease, the trial court calculated that Marsh’s “gross losses resulting
from Roche’s failure to pay rent under Sublease total $47,165,326.” (Appellant’s App. p.
66).
The trial court then “set off the amount of damages mitigated by Marsh,”
consisting of present and future rental payments from a subsequent sublease between
Marsh and First Advantage Background Services Corporation (First Advantage).
(Appellant’s App. p. 64). The sublease between Marsh and First Advantage Sublease
commenced on October 1, 2011 and expires on July 31, 2019; however, First Advantage
has options to extend the term for an initial four year period and a subsequent period of
three years and two months. As a result, the trial court determined that “Marsh’s net
damages, not adjusted for present value, equal $23,077,898.” (Appellant’s App. p. 69).
Using a discount rate of 6%, the present value of Marsh’s damages was determined to be
$17,743,568. After adding prejudgment interest and subtracting inapplicable costs, the
trial court awarded $18,188,933 to Marsh.
Roche now appeals. Additional facts will be provided as necessary.
DISCUSSION AND DECISION
I. Cross-Motion for Summary Judgment
Roche first argues that the trial court erred by denying its cross-motion for
summary judgment. Specifically, it contends that the trial court erred by failing to
determine as a matter of law that under the plain language of Section 17.01 and the
Extensions Roche properly terminated the Sublease. Roche also asserts that the trial
9
court erred in determining that genuine issues of material fact existed regarding the
parties’ obligations to cooperate in obtaining the SNDA.
A. Standard of Review
We first note that although this case proceeded to trial and the trial court entered a
final judgment on Marsh’s claims, we may still review the trial court’s ruling on Roche’s
cross-motion for summary judgment. See Four Seasons Mfg., Inc. v. 1001 Coliseum,
LLC, 870 N.E.2d 494, 501 (Ind. Ct. App. 2007). A party that fails to bring an
interlocutory appeal from the denial of a motion for summary judgment may still pursue
appellate review after an entry of final judgment because the denial of the motion places
the parties’ rights in abeyance pending ultimate determination by the trier of fact. Id.
Summary judgment is appropriate only when there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial
Rule 56(C). In reviewing a trial court's ruling on summary judgment, this court stands in
the shoes of the trial court, applying the same standards in deciding whether to affirm or
reverse summary judgment. Ogden v. Robertson, 962 N.E.2d 134, 140 (Ind. Ct. App.
2012), trans. denied. Thus, on appeal, we must determine whether there is a genuine
issue of material fact and whether the trial court has correctly applied the law. Id. In
doing so, we consider all of the designated evidence in the light most favorable to the
non-moving party. Id. A fact is material if its resolution would affect the outcome of the
case. Williams v. Tharp, 914 N.E.2d 756, 761 (Ind. 2009). An issue is genuine if a trier
10
of fact is required to resolve the parties’ differing accounts of the truth or if the
undisputed facts support conflicting reasonable inferences. Id.
Here, the trial court issued findings of fact and conclusions of law in support of its
denial of the parties’ cross-motions. However, the trial court's findings on summary
judgment are not binding on appeal. Myers v. Coats, 966 N.E.2d 652, 656 (Ind. Ct. App.
2012). Although an aid to appellate review, the trial court's findings and conclusions
merely afford the appellant an opportunity to address the merits of the trial court's
rationale. Id.
As undisputed facts, the trial court found that the parties had entered into the
Sublease; that Section 17.01 governed “acquisition of [the SRA and the SNDA]” and “a
conditional right to terminate in favor of Roche if an SRA and NDA, each “fully-
executed” and “reasonably acceptable,” were not delivered to Roche on or before April
25.” (Appellant’s App. pp. 23-4). Both Extensions were “duly executed in accordance
with Sublease” on April 24, 2008 and May 15, 2008 respectively.
B. Analysis
1. Interpretation of Section 17.01 and the Extensions
Roche’s initial challenge to the trial court’s denial of its cross-motion for summary
judgment turns on the interpretation of the Extensions. Indiana courts have recognized
the contractual nature of leases and the applicability of the law of contracts to leases.
Village Commons, LLC v. Marion County Prosecutor’s Office, 882 N.E.2d 210, 215 (Ind.
Ct. App. 2008), trans. denied. The interpretation or legal effect of a contract is a question
11
of law to be determined by the court. City of Jeffersonville v. Environmental
Management Corp., 954 N.E.2d 1000, 1012 (Ind. Ct. App. 2011).
In Indiana, the interpretation of a contract is controlled by the intent of the parties
as expressed by the clear language of the contract. Id. at 1008. Clear, plain, and
unambiguous contract terms are conclusive of the parties’ intent, and a court will not
construe the contract or consider extrinsic evidence, but will merely apply the contractual
provisions as they are written. Id. Moreover, a document is not ambiguous simply
because the parties disagree concerning the proper interpretation of the terms. Id. A
contract is ambiguous only if a reasonable person could find its terms susceptible to more
than one interpretation. Id.
The parties do not dispute that the last paragraph of Section 17.01 unambiguously
provided Roche with a unilateral option to terminate the Sublease. That language is clear
and unambiguous: if a “fully executed” SNDA, in form and substance acceptable to
Roche, Marsh, MSI and BOA, was not delivered to Roche by April 25, 2008, Roche’s
unilateral option to terminate vested. (Appellant’s Addendum Tab 1). Thus, Roche had
until May 15, 2008 to exercise its option and was required to do so upon prior written
notice. Provided that no compliant SNDA was delivered to it by April 25, 2008, Roche
could terminate the Sublease whether or not a compliant SNDA was thereafter delivered.
The parties’ dispute thus narrows to the interpretation and effect of the First and
Second Extensions. While referencing Roche’s option to terminate under Section 17.01,
the Extensions transferred the SNDA delivery date to May 15, 2008 (First Extension) and
12
later to May 30, 2008 (Second Extension). This created a new agreement as evidenced
by the following language:
First Extension:
The second paragraph of Section 17.01 of the [Sublease] provides that
[Marsh] and [Roche] shall cooperate in order to obtain a [SRA] from [MSI]
and a [SNDA] from [BOA], on or before April 25, 2008, failing which
[Roche] shall have the right, exercisable on or before May 15, 2008, to
terminate the [Sublease] as of such date.
[Marsh] and [Roche] have agreed that the date by which the SRA and the
[SNDA] shall be obtained is hereby extended to May 15, 2008, which date
shall remain as the date on or before which the [Sublease] may be
terminated.
(Appellant’s Addendum Tab 2)(emphasis added). The Second Extension mirrors the
First Extension’s second paragraph and goes on to provide that:
[Marsh] and [Roche] have agreed that the date by which the SRA and the
[SNDA] shall be obtained is hereby extended to May 30, 2008, which date
shall remain as the date on or before which the [Sublease] may be
terminated if said SRA and the [SNDA] are not obtained.
(Appellant’s Addendum Tab 3). Both extensions further state that all other “terms,
covenants and conditions of the [Sublease] shall remain in full force and effect and
unchanged hereby.” (Appellant’s Addendum Tabs 2 & 3).
Roche contends that the language of the Extensions created a race whereby Roche
could exercise its option to terminate the Sublease so long as it did so before a compliant
SNDA was delivered. The parties characterized this interpretation as the ‘race theory.’
Under its race theory, Roche argues that Section 17.01 provided two deadlines: April 25,
2008, the date its right to terminate vested (Vesting Date); and, May 15, 2008, the last
13
day it could exercise such right (Exercise Date). In Section 17.01, Roche had the right to
terminate “on or before” May 15, 2008. As the Extensions both retained the phrase “on
or before,” Roche asserts that the First Extension “collapsed” the Vesting Date into the
Exercise Date. It asserts that the Second Extension kept this arrangement but extended
the deadline to terminate to May 30. In other words, Roche’s interpretation boils down to
delivery of the SNDA before it exercised its right to terminate the Sublease.
Marsh argues that the Extensions simply reassigned both the vesting and exercise
dates for Roche’s option to terminate. Marsh contends that Roche’s interpretation is
illogical because it simultaneously acknowledges a unilateral right to terminate, yet
eviscerates that right by creating a race. Instead, it maintains Roche only had the right to
terminate before May 30, 2008 if the SNDA proved impossible to obtain, such as if BOA
refused to execute it. Marsh also contends that Roche’s “race-theory” ignores the
requirement in Section 17.01 that the parties mutually cooperate to obtain the SNDA.
Thus, if Roche could win the “race” by delivering notice of termination, it would render
the expressed duty to cooperate meaningless.
Construction of the terms of a written contract is a pure question of law for the
court. Barrington Management Co., Inc. v. Paul E. Draper Family Ltd. Partnership, 695
N.E.2d 135, 140 (Ind. Ct. App. 1998). In interpreting a written contract, the court should
attempt to determine the intent of the parties at the time the contract was made as
discovered by the language used to express their rights and duties. Id. The contract is to
be read as a whole when trying to ascertain the intent of the parties. Id. The court will
14
make all attempts to construe the language in a contract so as not to render any words,
phrases, or terms ineffective or meaningless. Id. Finally, the court must accept an
interpretation of the contract which harmonizes its provisions as opposed to one which
causes the provisions to be conflicting. Id.
Roche argues that the language of the Extensions unambiguously preserved its
termination option under Section 17.01. We disagree. Instead, we conclude the
Extensions unambiguously modified Roche’s option to terminate under Section 17.01.
The last paragraph of Section 17.01 provided two deadlines: (1) that a compliant SNDA
was to be delivered to Roche by April 25, 2008, and (2) if not, Roche could terminate the
Sublease, but had to do so on or before May 15, 2008. The third paragraphs of both
Extensions changed the first part of the last paragraph in Section 17.01 by specifying that
the SNDA “shall be obtained” by May 15 or May 30, 2008. The third paragraphs of both
Extensions thus changed the second part of the last paragraph in Section 17.01 by
transferring the date on which Roche could exercise its option to terminate to May 15 and
then May 30, 2008. The effect of such modifications was to extinguish Roche’s ability to
unilaterally determine whether and when it could terminate the Sublease. The Extensions
therefore modified the parties’ agreement and instead Roche’s receipt of a compliant
SNDA determined whether it could terminate the Sublease.
This is consistent with the language in Section 17.01, which established delivery
of the SNDA to Roche as the triggering event for its unilateral termination option to arise.
However, that act was to first occur on April 25, 2008 (Section 17.01), then on May 15,
15
2008 (First Extension) and finally on May 30, 2008 (Second Extension). Roche’s ability
to unilaterally terminate therefore became a casualty of the parties’ subsequent
agreements, as embodied by the Extensions, which reassigned the dates when the act of
delivering a compliant SNDA must occur.
This interpretation is supported by the law on contractual conditions, which
defines a condition as an act or an event, not merely the passage of time. Specifically,
RESTATEMENT (SECOND) OF CONTRACTS § 224, cmt. b (1981) provides in relevant part:
[T]here is inherent in the concept of condition some degree of uncertainty
as to the occurrence of the event. Therefore, the mere passage of time, as to
which there is no uncertainty, is not a condition and a duty is unconditional
if nothing but the passage of time is necessary to give rise to a duty of
performance. Moreover, an event is not a condition, even though its
occurrence is uncertain, if it is referred to merely to measure the passage of
time after which an obligor is to perform.
Here, the Extensions contained the parties’ agreement to shift the date when the act of
obtaining an SNDA occurred. An interpretation that Roche somehow retained its
unilateral termination option under Section 17.01 is unsustainable in light of the clear
language of the Extensions which transferred the date of the relevant act to April 25, then
May 15, and finally May 30, 2008. In sum, it is the act, not the date, which determines
whether Roche possessed the option to terminate the Sublease.
Roche’s arguments for a contrary interpretation fail to persuade us. First, as
Marsh points out, Roche’s race theory is inherently inconsistent with its insistence that
the Extensions preserved its discretionary termination option under Section 17.01. An
unconditional right to terminate on April 25, 2008, cannot coexist with a self-professed
16
race to deliver a compliant SNDA on or before May 15 or May 30, 2008. Indeed, there
would be no need for the First Extension to allow more time to obtain the SNDA if
Roche intended that its heretofore unconditional option to terminate were to remain in
force. Roche concedes this when it argues that the only change occasioned by the
Extensions “was that Marsh could cure its prior failure if it delivered the executed SNDA
prior to termination.” (Appellant’s Br. p. 21). Suggesting that a cure exists removes the
element of the discretion that had been provided to Roche under Section 17.01. Roche’s
argument is therefore tantamount to a concession that its option under Section 17.01
became wholly determinative on whether delivery of the SNDA occurred before the
deadline.
We also reject Roche’s reliance upon the language in the Extensions that either
May 15 or May 30, 2008 “shall be the date on or before which the [Sublease] may be
terminated if said SRA and [SNDA] are not obtained.” (Appellant’s Addendum Tabs 2
& 3). Although Roche argues that a contrary interpretation would render this phrase
meaningless, its argument is nothing more than a seemingly hypnotic repetition of the
words “on or before” done with the hope of persuading us that the Extensions did not
modify Roche’s discretionary right to terminate under Section 17.01. The mere fact that
the phrase was carried over from Section 17.01 to the Extensions does not, in and of
itself, demonstrate that Roche’s discretionary termination option had not been forfeited.
Instead, we view the phrase as fixing the date by which, under the new contractual
arrangement, Roche’s termination option may be effected albeit without the absolute
17
discretion afforded it under Section 17.01. Furthermore, we reject Roche’s assertions
that it would not forfeit its termination option under Section 17.01 without receiving
something in return and that a contrary interpretation would force Roche to wait until
“11:59:59 p.m. of the last day of the time period for Marsh to provide the document.”
(Appellant’s Br. p. 27). It is not for us to determine the wisdom of the parties’
contractual bargain or the drafting of the language expressing such bargain.
Sophisticated commercial actors should be free to allocate risks as they see fit, and courts
should not interfere simply because such risks have materialized. Rheem Mfg. Co. v.
Phelps Heating & Air Conditioning, Inc., 746 N.E.2d 941, 950-51 (Ind. 2001). Further, it
is common enough for parties to send advance notice of their intent to do an act that will
have operative effect in the future. The language of Section 17.01 requires this by
specifying that Roche’s termination can occur only upon prior written notice.
In sum, we conclude that the Extensions contain the parties’ clear intent for Roche
to have its termination option effective only upon a failure to deliver a compliant SNDA
by May 30, 2008. This conclusion rests upon the language of the Extensions that
modified Roche’s unilateral option to terminate under Section 17.01. Therefore, the trial
court did not err by denying Roche’s cross-motion for summary judgment as a matter of
law, and Roche’s arguments to the contrary fail.
2. Genuine Issue of Material Fact
Roche also argues that the trial court erred in finding a genuine issue of material
fact regarding the parties’ mutual obligation to cooperate in obtaining the SNDA. First, it
18
contends that since Section 17.01 obligated Marsh to use commercially reasonable efforts
to obtain the SNDA and the designated evidence purportedly shows that it did not do so,
no genuine issue of material fact existed on the parties’ cooperation. Second, Roche
argues that the trial court improperly relied on the parties’ contractual duty to cooperate
as the basis to find a dispute of material fact.
In denying Roche’s cross-motion, the trial court declined to give effect to either
party’s interpretation of the Extensions. However, it concluded that “[n]either
[Extension] modified the Sublease’s original requirement that the parties “shall cooperate
in order to obtain” the [S]NDA.” (Appellant’s App. pp. 24-25).6 Finding “that the
designated evidence supports reasonable inferences that neither Marsh nor Roche
cooperated as required by the second paragraph of Section 17.01 of the Sublease,” the
trial court concluded that a genuine issue of material fact existed regarding the parties’
covenant to mutually cooperate in obtaining the SNDA. (Appellant’s App. p. 28).
The party appealing the trial court’s denial of summary judgment bears the burden
of persuading us that the trial court erred. Irvine v. Rare Feline Breeding Center, Inc.,
685 N.E.2d 120, 123 (Ind. Ct. App. 1997), trans. denied. The denial of summary
judgment will be affirmed if it is sustainable on any theory or basis found in the
evidentiary matter designated to the trial court. Beradi v. Hardware Wholesalers, Inc.,
6
Marsh has filed an Appellee’s Motion to Strike, asking us to strike statements in Roche’s brief that Marsh asserts
are based on evidence not specifically designated to the trial court. Roche has filed an Appellant’s Response to
Appellee’s Motion to Strike. We do not rely on any of the challenged statements in resolving this appeal; therefore,
we denied the Motion to Strike as well as Marsh’s Motion for Leave to File a Reply by separate order issued prior to
this opinion.
19
625 N.E.2d 1259, 1261 (Ind. Ct. App. 1993), trans. denied. We agree with the trial court
that genuine issues of material fact existed.
Whether an act constitutes a termination of an agreement, and thus is a breach, is
often a question of fact, making summary judgment inappropriate. Hendershot v.
Indiana Medical Network, Inc., 750 N.E.2d 798, 804 (Ind. Ct. App. 2001). Further,
whether a party has committed a material breach of contract is a question of fact, the
resolution of which is dependent on several factors. Anderson v. Horizon Homes, Inc.
644 N.E.2d 1281, 1290 (Ind. Ct. App. 1995), trans. denied.
First, Roche asserts that the undisputed evidence shows that Marsh failed to use
commercially reasonable efforts to obtain the SNDA and by ignoring Marsh’s obligation,
the trial court improperly elevated this contractual obligation over the parties’ duty to
cooperate. However, commercial reasonableness is a question of fact. See Morris v.
Lyons Capitol Resources, Inc., 510 N.E.2d 221, 224 (Ind. Ct. App. 1987). Moreover,
different obligations within a contract represent separate covenants making the
fulfillment of those covenants, and therefore the question of breach, a separate question.
Roche acknowledges this by conceding that “[b]oth provisions must be given effect.”
(Appellant’s Br. p. 31). We therefore reject Roche’s attempt to confuse the issue.
Second, Roche contends that the trial court’s determination on whether Roche
made a good faith effort to cooperate under Section 17.01 of the Sublease was improperly
based upon the Hamlin doctrine. The Hamlin doctrine is derived from Hamlin v.
Steward, 622 N.E.2d 535 (Ind. Ct. App. 1993), and stands for the proposition that while
20
ordinarily there is no implied duty to perform in good faith, if the failure of a condition
precedent results from a party’s inaction, such party may not rely on the failure to avoid
the contract. Id. at 540-41. Because there was no dispute that an underlying debt was
owed in Hamlin, but only when payment would be due, which was in control of the
debtor, this court held that “we must infer good faith in the performance of the condition
in order to give meaning to the intention of the parties;” otherwise, the promise is
illusory. Id. at 541.
Roche contends that by denying summary judgment, the trial court impliedly tied
its right to terminate to the parties’ mutual obligation to cooperate in obtaining the
SNDA. It distinguishes Hamlin by arguing that Hamlin involved a contingency that was
not certain to occur, whereas the case at bar involved three definite deadlines to obtain
the SNDA: April 25, 2008 (Section 17.01), May 15, 2008 (First Extension), and May 30,
2008 (Second Extension). Roche also contends that there was no reason to imply a good
faith obligation because the parties’ obligations were spelled out in Section 17.01.
Finally, Roche asserts that obtaining the SNDA was not wholly within its control and
therefore its obligation to cooperate was not illusory. With respect to the latter point,
Roche cites Pardieck v. Pardieck, 676 N.E.2d 359, 364 n.3 (Ind. Ct. App. 1997), which
distinguished Hamlin in the context of a married couple’s mutual obligation to build up
marital property. Consequently, Roche argues that its insistence on its right to terminate
did not cause the failure of the condition precedent, and therefore Hamlin is inapposite.
21
Marsh argues that Roche had sufficient control to make the Hamlin doctrine
applicable because it could have approved the May 16 draft SNDA and requested BOA to
execute it. Marsh also contends that it was up to Roche by May 22 to convince BOA to
agree to Roche’s demands or accept BOA’s version, and that Roche chose not to sign the
executed SNDA delivered by Marsh at 4:57 p.m. on May 30. Further, even if Hamlin
does not require sole control, Marsh asserts that additional Indiana precedent contains
that requirement and cites Billman v. Hensel, 391 N.E.2d 671, 673 (Ind. Ct. app. 1979), in
support. Billman predates Hamlin, but the Billman court found an implied obligation to
make a reasonable and good faith effort to satisfy a condition precedent in the context of
a buyer obtaining finance. Id.
We agree with Roche in part; however, the Hamlin doctrine is relevant when
evaluating the parties’ duty of cooperation following Roche’s rejection of the May 16
SNDA. In Ind. State Hwy Comm’n v. Curtis, 704 N.E.2d 1015, 1019 (Ind. 1998), the
supreme court applied the Hamlin doctrine in the context of third party approval of a
settlement agreement. The Curtis court pointed out that not “every failure of a condition
results in an estoppel against asserting the condition as a proper reason to avoid the
contract.” Id. While “the Hamlin doctrine prevents a party from acts of contractual
sabotage or other acts in bad faith by a party that cause the failure of a condition,” “where
the condition is itself the approval by some division or component of the party, however,
the obligation is only to consider that approval in good faith.” Id.
22
We conclude that there is no issue of genuine fact regarding Roche’s rejection of
the May 16 SNDA. Faced with the possibility that it would be required to assume
Marsh’s obligations under the Prime Lease, Roche had bargained for a twelve-month
limitation in both the SRA and the SNDA. It received such limitation in the SRA; thus, it
was reasonable for Roche to insist upon an SNDA consistent with its contractual
requests. Accordingly, its rejection of the May 16 SNDA did not constitute a breach of
the failure to cooperate.
We reach a different result regarding the May 30 SNDA. Each contended that the
other failed to cooperate under Section 17.01. The parties designated evidence on each
party’s actions after Roche rejected the May 16 SNDA. The designated evidence
includes Marsh’s actions or lack thereof following Roche’s receipt of the May 16 SNDA;
Abrams’ May 29, 2008 email which discussed a possible third extension of the SNDA
deadline; and Roche’s actions immediately before and following the May 30 SNDA.
Given the parties’ different views, we agree with the trial court that the designated
evidence gave rise to reasonable inferences that the parties breached their cooperation
obligation regarding the May 30 SNDA. We therefore conclude that a genuine issue of
material fact existed. The trial court did not err in denying Roche’s cross-motion for
summary judgment.
II. Judgment
Roche next contends that the trial court’s Judgment is erroneous. Specifically, it
challenges the trial court’s construction of the Sublease and the Extensions as a matter of
23
law, the trial court’s determination that its actions constituted a breach, and that it was in
default of its obligations under the Sublease.
The essential elements of a breach of contract action are 1) the existence of a
contract, 2) the defendant’s breach thereof, and 3) damages. Ruse v. Bleeke, 914 N.E.2d
1, 11 (Ind. Ct. App. 2009). In determining that Roche breached the Sublease, the trial
court first construed the Sublease and the Extensions as requiring that Roche receive a
SNDA by May 30, 2008. In particular, it determined that the Extensions “simply
reassigned the dates by which one party (Marsh under the [First Extension]) or both
parties (Marsh and Roche under the [Second Extension]) were granted to fulfill the
conditions set forth in Section 17.01 or terminate the lease if the conditions were not
met.” (Appellant’s App. p. 55).
The trial court next concluded that Roche committed separate breaches of the
Sublease. First, “Roche refused to accept the SNDA delivered to Roche by Marsh on
May 30 that satisfied the provisions of Section 17.01 of the Sublease.” (Appellant’s App.
p. 54). Second, “Roche refused to request execution of the SNDA that satisfied the
provisions of Section 17.01 of the Sublease received from BOA on May 16.”
(Appellant’s App. p. 54). Third, “Roche failed to satisfy its obligation to cooperate to
obtain the SNDA as required by Section 17.01 of the Sublease.” (Appellant’s App. p.
54). Fourth, under Hamlin v. Steward, 622 N.E.2d 535 (Ind. Ct. App. 1993), Roche
could not rely on the failure of a condition precedent to excuse its performance.
A. Standard of Review
24
The parties each dispute which standard of review applies. Roche claims that the
standard of review should be a de novo review of contract interpretation, whereas Marsh
insists upon a clearly erroneous standard pursuant to Ind. Trial Rule 52(A). Here, the
trial court issued findings of fact and conclusions of law in support of its judgment and
upon request from the parties. While both parties focus on selective provisions of our
standard of review pursuant to Ind. Trial Rule 52(A), we find such distinctions
unnecessary and a needless distraction as they simply emphasize different aspects of our
review, which is well settled under T.R. 52(A).
The trial court entered findings of fact and conclusions thereon pursuant to Trial
Rule 52(A) at the request of the parties, and thus, we apply a two-tiered standard of
review: first, we determine whether the evidence supports the findings, and second,
whether the findings support the judgment. Briles v. Wausau Ins. Co., 858 N.E.2d 208,
212 (Ind. Ct. App. 2006), trans. denied.
We will not disturb the trial court's findings or judgment unless they are clearly
erroneous. Walsh & Kelly, Inc. v. Int’l Contractors, Inc., 943 N.E.2d 394, 398 (Ind. Ct.
App. 2011), trans. denied. Findings of fact are clearly erroneous when the record lacks
any reasonable inference from the evidence to support them, and the trial court’s
judgment is clearly erroneous if it is unsupported by the findings and the conclusions
which rely upon those findings. Briles, 858 N.E.2d at 212. In establishing whether the
findings or the judgment are clearly erroneous, we consider only the evidence favorable
to the judgment and all reasonable inferences to be drawn therefrom. Id.
25
While conducting our review, we cannot reweigh the evidence or judge the
credibility of any witness, and must affirm the trial court's decision if the record contains
any supporting evidence or inferences. Id. However, while we defer substantially to
findings of fact, we do not do so for conclusions of law. Id. We evaluate conclusions of
law de novo and owe no deference to a trial court's determination of such questions. Id.
Furthermore, because Marsh bore the burden of proof at trial and prevailed, Roche
appeals from an adverse judgment. See McCauley v. Harris, 928 N.E.2d 309, 313 (Ind.
Ct. App. 2010), trans. denied. When the trial court enters findings in favor of the party
bearing the burden of proof, the findings are clearly erroneous if they are not supported
by substantial evidence of probative value. Id. Thus, this court will affirm a judgment
where it finds substantial supporting evidence, unless it is left with a definite and firm
conviction that a mistake has been made. See id.
B. Analysis
1. Interpretation of Section 17.01 and the Extensions
The trial court concluded that the Sublease and the Extensions unambiguously
stated that Roche could terminate the Sublease only if it did not receive a compliant
SNDA by the end of day, May 30, 2008. While Section 17.01 created a unilateral
termination option in favor of Roche, the trial court concluded that the Extensions
unambiguously permitted termination “ONLY IF both documents in a form and
substance reasonably acceptable to [Marsh], [Roche], [MSI] and [BOA] were not fully
26
executed and delivered on or before” May 15 and later May 30. (Appellant’s App. p. 35).
Conclusion of Law No. 74 sums up the trial court’s interpretation as follows:
74. […]. [T]he Sublease and its two [Extensions] are unambiguous:
Roche had no right to terminate the Sublease unless, by the end of the day
on May 30, 2008, the parties had not obtained a fully executed SNDA (the
SRA had already been obtained) in form and substance reasonably
acceptable to Marsh, Roche and [BOA]. In order to exercise the right of
termination in the event the condition was not met, Roche was required to
give Marsh prior written notice of its intent to terminate if the SNDA had
not been obtained. There is no ambiguity in this language, but if there was
an ambiguity in the Sublease, as amended, then the objective evidence of
the parties’ intent that they exchanged during the drafting process leads to
this same conclusion. Because Marsh delivered to Roche a fully executed
SNDA in form and substance reasonably acceptable to Marsh, Roche and
[BOA] on May 30, 2008, before 5:00 p.m., Roche had no right to terminate
the Sublease. Because Marsh met the condition of delivery of the SNDA
by May 30, 2008 Roche’s conditional right of termination never arose.
(Appellant’s App. pp. 56-57).
Roche’s challenge to the trial court’s conclusion is essentially the same as its
argument on the denial of its cross-motion for summary judgment. Roche argues that the
trial court ignored the “on or before” language in Section 17.01 and the Extensions,
thereby taking away Roche’s right to terminate. According to Roche, it would have to
wait until the last nanosecond to terminate, even if it had received a non-compliant
SNDA from Marsh earlier. In response, Marsh argues that the trial court’s interpretation
is correct in declining to “elevate Roche’s conditional right to terminate into an
unconditional [right] subject to a race-win.” (Appellee’s Br. p. 26).
We have already interpreted Section 17.01 and the Extensions as a matter of law.
In our view, the Extensions modified Roche’s conditional right to terminate the Sublease.
27
The language of both the First and Second Extensions moved the date of the act,
procurement of a compliant SNDA, to May 15, 2008 and then May 30, 2008. As a result,
Roche’s unilateral termination option, vesting as it did under Section 17.01 on April 25,
2008, was thereafter modified by parties’ agreement as expressed in the Extensions. By
first agreeing that the date to obtain the SNDA be extended to May 15 under the First
Extension and later agreeing to extend to May 30, 2008 under the Second Extension,
Roche relinquished its unilateral termination option under Section 17.01. We therefore
conclude that the trial court’s interpretation of Section 17.01 as modified by the
Extensions was correct as a matter of law.
2. Duty to Cooperate
Next, Roche argues that the trial court erroneously found that Roche did not
cooperate. The trial court found that Section 17.01 imposed a mutual obligation duty of
cooperation on both parties and Roche breached such duty by not accepting the May 16
SNDA or the May 30 SNDA, both of which the trial court deemed compliant with
Section 17.01. The trial court concluded that under Hamlin, Roche had an obligation on
May 29 to cooperate in good faith. Specifically, the trial court concluded that “[b]y May
29,” “Roche’s conduct was focused solely on terminating the Sublease, and it undertook
no further steps to cooperate to obtain the SNDA.” (Appellant’s App. p. 59). The trial
court also characterized Roche’s conduct as lulling Marsh into believing that a third
extension of the deadline would occur.
28
Roche’s dispute of the trial court’s conclusion that it did not cooperate is premised
upon its insistence that its unilateral termination option under Section 17.01 was
preserved by the Extensions. We have determined that no such right was preserved.
Consequently, we limit our review to whether there is substantial evidence to support the
trial court’s findings, whether the findings fail to support the judgment, and whether the
trial court applied the wrong legal standard to properly found facts. See Fraley v.
Minger, 829 N.E.2d 476, 482 (Ind. 2005).
In concluding that Roche breached its duty to cooperate regarding the SNDA, the
trial court found the following facts. On May 16, 2008, Gretencord sent Oldham and
Abrams the May 16 SNDA. The May 16 SNDA did not contain Roche’s desired twelve-
month limitation to be bound to the Prime Lease. On May 20, 2008, Abrams informed
Gretencord that Roche rejected the SNDA. Following Gretencord’s suggestion, on May
22, 2008, Abrams contacted BOA to obtain the twelve-month limitation. On May 22,
2008, Abrams informed Gretencord and Oldham that BOA was considering Roche’s
position and that he informed BOA that the parties were “under a tight time frame to
resolve by next Friday,” May 30, 2008. During May 22 through May 28, 2008, neither
party followed up with BOA. However, on May 28, 2008, Abrams emailed Gretencord
that
[O]nce again we come up against a deadline for the SNDA from your
landlord’s lender and we have nothing as of today. I am out as of 2:30
tomorrow and [F]riday so we probably need another extension but not sure
how much longer Roche can keep going in limbo, spending money and
moving people, etc[.,] if they do not have a deal that works for them.
29
Please prepare another letter to extend the time to terminate for one more
week and push your contacts to get us some response.
(Joint Trial Exh. No. 125).
That same day, Gretencord emailed Abrams requesting the status of his discussion
with BOA and on May 29, 2008, Abrams informed Gretencord that BOA was waiting on
any response of the servicer to the SNDA. That same day, several significant events
occurred: Gretencord prepared another extension and Roche prepared and sent its notice
of termination. Thereafter, Roche made no effort to obtain an SNDA. Nor did Roche
inform Marsh that it intended to terminate the Sublease. Instead, Roche sent its notice of
termination to an overnight courier. On May 30, 2008, after Gretencord learned of the
termination notice, Marsh delivered to Roche an SNDA containing Roche’s desired
twelve-month limitation yet Roche refused to sign it. Roche does not challenge these
findings but only their interpretation. Thus, we conclude that the foregoing findings are
amply supported by the parties’ email exchanges and testimony at trial.
Based on these findings the trial court concluded that Roche failed to fulfill its
duty under Section 17.01 to cooperate in obtaining the SNDA and that such failure
constituted a breach. We disagree, however, that Roche’s rejection of the May 16 SNDA
constituted a breach of the duty to cooperate. As we have already recognized, the duty
imposed under the Hamlin doctrine requires only that where a condition is based on a
third party’s approval, “the obligation is only to consider that approval in good faith.”
Curtis, 704 N.E.2d at 1019. Here, BOA provided the May 16 SNDA, which constituted
its approval of terms that it was willing to accept. Yet, the May 16 SNDA did not contain
30
the twelve-month limitation that Roche had consistently insisted upon. Given the
possible assumption of the Prime Lease and the Curtis requirement to consider third party
approvals in good faith, we cannot conclude that Roche breached the Sublease by
declining to accept the May 16 SNDA.
Nevertheless, the findings support the conclusion that Roche breached the
Sublease by its conduct surrounding the May 30 SNDA. On May 29, 2008, Roche chose
not to inform Marsh that it intended to terminate the Sublease if the SNDA was not
obtained. Yet, earlier that day Roche’s counsel requested another extension of the
deadline to obtain an SNDA. Upon receipt of a compliant SNDA on May 30, 2008,
Roche did not accept it. Consequently, we conclude that the trial court properly
determined that Roche breached its duty to cooperate regarding the May 30 SNDA and
find no error with the trial court’s conclusion that such failure constituted a breach of the
Sublease.7
III. Damages
Finally, Roche appeals the trial court’s award of damages. The trial court
concluded that “[b]ecause Roche is in default of the Sublease, the unambiguous term of
the Sublease for purposes of assessing damages runs through November 21, 2026.”
(Appellant’s App. p. 66). Calculating the present value of the remaining rents under the
7
Roche also argues that the trial court incorrectly concluded that its refusal to execute the May 16 SNDA
constituted a default under Article 16. Because we conclude that Roche did not breach the duty of cooperation by
refusing to execute the May 16 SNDA, we find it unnecessary to address this argument.
31
Sublease and prejudgment interest and deducting amounts mitigated by Marsh and
inapplicable costs, the trial court awarded Marsh $18,188,933.
A. Standard of Review
The trial court’s award of damages is subject to review for an abuse of discretion.
City of Jeffersonville, 954 N.E.2d at 1015. This court will not reverse a damage award
upon appeal unless it is based on insufficient evidence or is contrary to law. Id. In
determining whether an award is within the scope of the evidence, we may not reweigh
the evidence or judge the credibility of witnesses. Id. However, the appropriate measure
of damages in a breach of contract case is the loss actually suffered as a result of the
breach. Id. The non-breaching party is not entitled to be placed in a better position than
it would have been if the contract had not been broken. Id.
B. Analysis
1. Default
Roche contends that the trial court erroneously determined that its actions
constituted a default under Section 16.01. Specifically, Roche argues that it had a five-
year lease with options to extend; its May 29, 2008 letter constituted notice sufficient to
terminate the Sublease under Section 1.03; and that Marsh failed to institute the notice
and cure provisions of Section 16.01. As a result, Roche contends that Section 1.03
applies, thereby allowing Roche to terminate the Sublease at five-year intervals provided
that it gave twelve months’ prior notice. By paying damages for five years, Roche argues
that it would have cured any default. We disagree.
32
Section 1.03 provided the following:
Provided that [Roche] shall not be in Default (as hereinafter defined)
hereunder, [Roche shall have the right to terminate this [Sublease] as of
December 31, 2013, December 31, 2018, or December 31, 2023 upon
twelve (12) months prior written notice to [Marsh], which notice shall be
accompanied by a payment to [Marsh] of a sum equal to three (3) months’
[rent and other amounts.]
(Appellant’s App. p. 91). Section 16.01 specified the events constituting default by
Roche. Subsection (c) provides that “[f]ailure by [Roche] to observe or to perform any
other covenant, agreement, condition or provision of this [Sublease]” constitutes an event
of default. (Appellant’s App. p. 115). The trial court concluded that Roche breached the
Sublease by its improper termination on May 29, 2008. Pursuant to 16.01(c), this
constituted an event of default triggering Marsh’s remedies under Section 16.02.
We reject Roche’s argument that it could terminate under Section 1.03. It assumes
that Roche did not breach the Sublease and thereby commit an act of default under
Section 16.01. Under the unambiguous language of Section 1.03, Roche could not avail
itself of the early termination option if it committed an act of default. By refusing to
enter into the Sublease after it received a compliant SNDA, Roche committed an act of
default under Section 16.01(c) by breaching a covenant of the Sublease. Thus, Roche
cannot avail itself of relief under Section 1.03.
Further, Roche fails to cite any authority permitting us to construe the Sublease as
a five year lease with options to renew. As Marsh points out, the Sublease was
negotiated by sophisticated parties and Roche could have insisted on a five-year lease
with options to renew yet did not. Section 1.02(c) unambiguously provides that “[t]he
33
term of the [Sublease] for the entirety of the Premises shall expire on […] December 21,
2026, unless earlier terminated as provided in this [Sublease].” (Appellant’s App. p. 91).
The Sublease unambiguously spells out the consequences of Roche’s default.
Section 16.02 (b) permitted Marsh to terminate Roche’s right of possession (in other
words, to affirm the Sublease) and relet the Premises. The parties agreed that Roche
would be liable for unpaid rent remaining for the duration of the Sublease, but only to the
extent that such rent exceeds rental amounts received by Marsh from reletting of the
Premises. The trial court concluded that Marsh had properly mitigated its damages in
reletting the Premises. Roche makes no argument that the trial court improperly
calculated the amount of damages or that Marsh failed to mitigate its damages.
Finally, Roche cannot insist that Marsh failed to observe Section 16.01 notice and
cure provision. Marsh’s June 24, 2008 letter expressly urged Roche “to cure its default
by retracting its repudiation of the Sublease.” (Appellant’s App. p. 597). A default
termination clause in a contract enables a party to terminate its own performance and
bring suit against the breaching party. Solitron Devices, Inc. v. Honeywell, Inc., 842 F.2d
274, 278 (11th Cir. 1988). Where the contract has already been terminated by the party
allegedly in breach, the suing party’s compliance or lack of compliance with the
termination clause is irrelevant. Id. Thus, we are not persuaded by Roche’s argument
that Marsh failed to follow Section 16.01(c): once Roche terminated the Sublease, a cure
notice delivered twenty days thereafter would have served no purpose. In any event,
Roche’s June 12, 2008 letter unequivocally indicates that Roche had no intention to enter
34
into the Sublease. For all of these reasons, we find no abuse of discretion by the trial
court’s award of damages on these grounds.
2. Speculative Damages – long-term lease
Roche additionally argues that the damages awarded by the trial court are
speculative because its calculation of damages was based on the full eighteen-year term
of the Sublease. Roche cites Rauch v. Circle Theatre, 374 N.E.2d 546 (Ind. Ct. App.
1978), for the proposition that damages for breach of a long-term lease are inherently
speculative and that the evidence only supported damages up to December 31, 2013.
Rauch involved the breach of an 89-year lease by the lessee based upon its
unauthorized assignment of the lease. Id. at 549. The breach occurred approximately
halfway through the lease. See id. The Rauch court cited the general rule that “the
lessor’s damages would be computed by reference to the rent reserved for the entire term
of the lease.” Id. at 552. However, it recognized that “where a lease is to run for a
lengthy number of years into the future, an award of damages calculated by reference to
the entire term of the lease would render a figure that would be so arbitrary and
speculative as to be wholly inequitable.” Id. Finding, however, that the lessor had not
suffered an injury, the Rauch court refused to overturn the trial court’s decision not to
award damages for the lessee’s breach. Id. at 553.
Rauch contains factors distinguishing it from this case. Most importantly, the
opinion does not mention whether the lease included contractual damage provisions
agreed to by the parties. Further, although concluding that the lessee committed an
35
anticipatory breach, the Rauch court actually found that this did not give rise to damage
apart from nominal damages. See id. Consequently, the Rauch court’s citation to the
general rule on the propriety of damages for breach of long-term lease is arguably dicta
and inapplicable under the circumstances here.
While we agree that damages for the breach of a long-term contract may be
susceptible to speculation, they are not inherently speculative, especially under the
particular circumstances of this case. The “landlord’s damages for the tenant’s breach of
a long-term lease agreement is the difference between the present lease value for the
remainder of the term and the present fair rental value of the premises for the remainder
of the term.” 25 WILLISTON ON CONTRACTS § 66:86 (4th ed. 2002). The term may not
exceed, however, a period in which damages “can reasonably be forecasted or soundly
predicted.” 49 AM. JUR. 2D LANDLORD AND TENANT § 93 (2006).
Here, Roche and Marsh entered into an eighteen year sublease that spelled out
Roche’s rental obligation throughout the term. The trial court used a 6% discount rate to
calculate the present value of these rental payments. It reduced such amount by what it
concluded to be the fair rental value for the remainder of the term based upon Marsh’s
sublease with First Advantage, which Roche did not challenge during the trial or on
appeal. Consequently, any speculation here results from the possibility that Roche would
exercise its early termination option. While under ordinary circumstances that may
suffice to conclude that damages are indeed speculative, that option was foreclosed by
Roche’s default. Roche’s allegations of speculation under these circumstances are
36
therefore unfounded. Accordingly, we hold that the trial court did not abuse its discretion
in awarding Marsh damages based on Roche’s rental obligation under the eighteen-year
term of the Sublease.
CONCLUSION
Based on the foregoing, we conclude that (1) the trial court properly denied
Roche’s cross-motion for summary judgment; (2) that the trial court properly granted
Judgment in favor of Marsh; and (3) that the trial court did not abuse its discretion in
awarding Marsh damages.
Affirmed.
BAILEY, J. concurs
CRONE, J. dissents with separate opinion
37
IN THE
COURT OF APPEALS OF INDIANA
ROCHE DIAGNOSTICS OPERATIONS, INC.,)
)
Appellant-Defendant, )
)
vs. ) No. 29A02-1201-PL-4
)
MARSH SUPERMARKETS, LLC, )
)
Appellee-Plaintiff. )
CRONE, Judge, dissenting
I respectfully dissent. I believe that the trial court should have granted Roche’s
summary judgment motion because the Sublease and Extension Letters are unambiguous
and authorize Roche to terminate the Sublease at the time and in the manner that it did. I
agree with Roche that its “right to terminate vested once Marsh failed to deliver the fully
executed SNDA by April 25, 2008” and that, pursuant to the Extension Letters, it could
38
still exercise that right at any point “on or before” the revised deadlines of May 15 and
May 30, 2008, respectively; “[t]he only change was that Marsh could cure its prior failure
if it delivered the executed SNDA prior to termination.” Appellant’s Br. at 21. This is
the only interpretation of the Extension Letters that does not nullify Roche’s bargained-
for right to terminate the Sublease after April 25 and does not render the phrase “on or
before” meaningless. Roche’s termination of the Sublease became effective before
Marsh delivered the SNDA; therefore, Roche was not in default and its damages should
be limited to December 31, 2013, pursuant to Section 1.03 of the Sublease.
39