WFC Lynnwood I LLC v. Lee of Raleigh, Inc. ( 2018 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-562
Filed: 5 June 2018
Wake County, No. 15 CVS 17040
WFC LYNNWOOD I LLC and WFC LYNNWOOD II LLC, Delaware Limited
Liability Companies, Plaintiffs
v.
LEE OF RALEIGH, INC., CHARLES L. PARK and SUN OK HELLNER, Defendants
Appeal by defendants from orders entered 27 January 2017 and 24 March 2017
by Judge R. Allen Baddour, Jr. in Wake County Superior Court. Heard in the Court
of Appeals 13 December 2017.
Smith Moore Leatherwood LLP, by Eric A. Snider and Elizabeth Brooks
Scherer, for plaintiff-appellees.
Harris & Hilton, P.A., by Nelson G. Harris, for defendant-appellants.
CALABRIA, Judge.
Where defendants failed to meet their burden when challenging a liquidated
damages clause, the trial court did not err in awarding liquidated damages on
summary judgment. Where a commercial lease with a reciprocal attorneys’ fees
provision was executed after the effective date of N.C. Gen. Stat. § 6-21.6, the trial
court did not err in awarding attorneys’ fees pursuant to that statute. Where
guarantors signed a guaranty explicitly noting their liability for outstanding
attorneys’ fees, the trial court did not err in holding them jointly and severally liable
WFC LYNNWOOD I V. LEE OF RALEIGH, INC.
Opinion of the Court
for attorneys’ fees. Where there was insufficient evidence to support the trial court’s
finding that the rates charged by plaintiffs’ attorneys were comparable to “the
customary fee for like work,” we remand for further findings. We affirm in part,
vacate in part and remand in part for further findings on the amount of attorneys’
fees.
I. Factual and Procedural Background
WFC Lynnwood I LLC and WFC Lynnwood II LLC (“plaintiffs”) are Delaware
corporations which own the Lynnwood Collection Shopping Center (“Lynnwood
Collection”) in Wake County. On 26 October 2011, Lee of Raleigh, Inc. (“Lee”),
through its president, Sun Ok Hellner (“Hellner”), executed a lease, agreeing to lease
space in Lynnwood Collection from plaintiffs. The lease contemplated a 64-month
term, to run until 30 September 2017, and as part of the agreement, Lee agreed to
conduct business continuously during the term of the lease. The lease also contained
a reciprocal attorneys’ fees provision for the recovery of fees resulting from litigation.
As part of the lease, Hellner and Charles L. Park (“Park”) executed a guaranty to the
lease, personally guaranteeing Lee’s obligations. On 2 November 2015, Lee informed
plaintiffs that it would cease operating business on 6 November 2015, and would
surrender possession of the premises on 7 November 2015. Lee did so.
On 29 December 2015, plaintiffs filed a complaint against Lee, Hellner, and
Park (collectively, “defendants”), alleging that Lee’s abandonment of the premises
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constituted a default under the lease, and that plaintiffs were entitled to liquidated
damages resulting from Lee’s failure to remain in operation for the duration of the
lease. Plaintiffs’ complaint included claims for breach of contract by Lee as tenant,
and breach of contract by Hellner and Park as guarantors.
On 16 February 2016, defendants filed an answer and motion to dismiss.
Defendants alleged that the liquidated damages contemplated in the lease were void,
that plaintiffs failed to mitigate damages, that plaintiffs lacked certificates of
authority to transact business in North Carolina, and that plaintiffs’ claims were
barred by estoppel. Defendants further moved to dismiss plaintiffs’ complaint
pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure, alleging
that “Plaintiffs have failed to state claims upon which relief can be granted[.]”
On 7 October 2016, plaintiffs moved for summary judgment. On 27 January
2017, the trial court entered an order granting summary judgment in favor of
plaintiffs. This order awarded plaintiffs $43,253.16, plus interest; liquidated
damages of $37,685.98, plus interest; and attorneys’ fees, to be subsequently
determined.
On 3 February 2017, plaintiffs filed a motion for attorneys’ fees, noting that
the trial court had already held that fees should be awarded, and thus that the issue
before the court was “not whether attorneys’ fees and costs should be awarded to
[plaintiffs]; rather, the issue is the amount of reasonable attorneys’ fees and costs[.]”
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Opinion of the Court
On 24 March 2017, the trial court entered an order on attorneys’ fees. The trial court
recognized that the lease agreement included a reciprocal agreement for the payment
of attorneys’ fees, and that the guaranty agreement signed by Hellner and Park
included a provision for the payment of attorneys’ fees. The trial court considered the
affidavit of plaintiffs’ counsel, along with the range of hourly rates of attorneys in
Wake County and the amount of work required by the case, and found that “the costs
incurred by Plaintiffs were reasonable and necessary to enforce the Lease and
Guaranty.” The trial court therefore awarded attorneys’ fees in the amount of
$41,807.50 for costs incurred through 31 January 2017, and an additional $2,929.35
for costs incurred subsequently.
From the order granting summary judgment in favor of plaintiffs, and the
order awarding attorneys’ fees, defendants appeal.
II. Summary Judgment
In their first argument, defendants contend that the trial court erred in
granting summary judgment in favor of plaintiffs, specifically with respect to
liquidated damages. We disagree.
A. Standard of Review
“Our standard of review of an appeal from summary judgment is de novo; such
judgment is appropriate only when the record shows that ‘there is no genuine issue
as to any material fact and that any party is entitled to a judgment as a matter of
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law.’ ” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting
Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).
B. Analysis
In its order granting summary judgment in favor of plaintiffs, the trial court
awarded, inter alia, liquidated damages in the amount of $37,685.98, plus interest.
Defendants contend that this was error, because the provision of the lease
establishing liquidated damages was void.
Section 20 of the lease, addressing hours and conduct of business, required
defendants to operate continuously during the term of the lease, and provided that:
In the event of a Default by Tenant of any of the conditions
in this Article 20, Landlord shall have, in addition to any
and all remedies herein provided, the right at its option to
collect not only the Minimum Rent, but Additional Rent at
the rate of one three hundred and sixty fifth (1/365th) of
the amount of the annual Minimum Rent for each day
Tenant is in Default or Breach of the provisions of this
Article. Landlord and Tenant specifically acknowledge
that the Additional Rent remedy provided for in the
immediately preceding sentence is a provision for
liquidated damages and is not a penalty, that the damages
which Landlord is likely to suffer should Tenant breach
any of the conditions in this Article are impossible to
calculate at the time this Lease is executed, and because of
its indefiniteness or uncertainty, the amount stipulated is
a reasonable estimate of the damages which would
probably be caused by a Breach or is reasonably
proportionate to the [damages] which would be caused by
such Breach, and the parties have specifically negotiated
this provision, without which Landlord would not have
entered into this Lease.
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Defendants concede that they did not operate continuously for the term of the lease,
thus violating Section 20, and that, if the “Additional Rent” described above is not a
void provision, defendants would be liable for the amount described. However,
defendants contend that this is a “double damage provision,” and thus void.
“Liquidated damages are a sum which a party to a contract agrees to pay or a
deposit which he agrees to forfeit, if he breaks some promise, and which, having been
arrived at by a good-faith effort to estimate in advance the actual damage which
would probably ensue from the breach, are legally recoverable or retainable . . . if the
breach occurs.” Knutton v. Cofield, 273 N.C. 355, 361, 160 S.E.2d 29, 34 (1968)
(citation and quotation marks omitted). “A stipulated sum is for liquidated damages
only (1) where the damages which the parties reasonably anticipate are difficult to
ascertain because of their indefiniteness or uncertainty and (2) where the amount
stipulated is either a reasonable estimate of the damages which would probably be
caused by a breach or is reasonably proportionate to the damages which have actually
been caused by the breach.” E. Carolina Internal Med., P.A. v. Faidas, 149 N.C. App.
940, 945-46, 564 S.E.2d 53, 56 (citations and quotation marks omitted), aff’d per
curiam, 356 N.C. 607, 572 S.E.2d 780 (2002). The party seeking to invalidate a
liquidated damages clause bears the burden of proving the provision is invalid. Seven
Seventeen HB Charlotte Corp. v. Shrine Bowl of the Carolinas, Inc., 182 N.C. App.
128, 131-32, 641 S.E.2d 711, 713-14 (2007).
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Defendants, challenging the liquidated damages provision, bear the burden of
showing that damages were not difficult to ascertain, that the amount stipulated was
not a reasonable estimate, or that the amount stipulated was not reasonably
proportionate to plaintiffs’ actual damages. Instead, defendants broadly describe the
liquidated damages clause as “a penalty.” Defendants contend that “if double rent as
provided for in Landlords’ form lease is a reasonable estimate of damages suffered
from (a) lost percentage rent and (b) other damages resulting from failure to
continuously operate; it cannot be, in a mathematical sense, a reasonable estimate of
simply (b) other damages resulting from failure to continuously operate.”
Defendants’ argument concerning “lost percentage rent” refers to a secondary
argument. Defendants contend that the sentence in Section 20 providing for
“Additional Rent” should have been removed from the final draft of the agreement.
Defendants cite a deposition which purports that the sentence was only in the
agreement as the result of an editing error. Per this deposition, the sentence was
only to remain there if percentage rent was paid under the lease. Because the lease
contained no percentage rent provision, the provision of Section 20 granting
“Additional Rent” should have been similarly stricken.
Even assuming arguendo that defendants’ argument is true, and that the
sentence is the result of an editing error, that fact amounts to parol evidence. “[P]arol
evidence is not admissible to contradict the language of the contract.” Thompson v.
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First Citizens Bank & Tr. Co., 151 N.C. App. 704, 709, 567 S.E.2d 184, 189 (2002).
The language of Section 20 is plain and clear. Pursuant to that section, in the event
of breach by defendants, plaintiffs are entitled to “Additional Rent.” Defendants’
arguments as to how that section arrived in the final document are parol evidence,
and will not be considered to contradict the agreement.
Defendants’ argument, then, is that the liquidated damages provision was
based on both actual damages and lost percentage rent, which shows that the
liquidated damages provision was not a reasonable estimate of actual damages.
However, because any arguments concerning percentage rent were parol evidence,
the trial court was not to consider them, nor will this Court. As such, defendants are
left with no argument as to whether the liquidated damages sought by plaintiffs were
not a reasonable estimate of damages, or reasonably proportionate to damages
suffered. We hold, therefore, that defendants did not meet their burden with respect
to the liquidated damages clause, and that the trial court did not err in enforcing it.
As an aside, defendants suggest that this is a “double damage” provision, and
is therefore void as a penalty. Defendants cite to a New York decision in support of
their argument. Our analysis above, however, addresses this point. To wit:
Defendants bore the burden of challenging the liquidated damages provision, be it
“double damage” or otherwise, and have failed to meet that burden. This argument
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by defendants does not change our analysis, nor does it require additional
consideration.
III. Attorneys’ Fees
In their second argument, defendants contend that the trial court erred in
awarding attorneys’ fees pursuant to N.C. Gen. Stat. § 6-21.6.
A. Standard of Review
“The decision whether to award attorney’s fees is within the sound discretion
of the trial court and will not be overturned absent an abuse of discretion.” Egelhof
v. Szulik, 193 N.C. App. 612, 620, 668 S.E.2d 367, 373 (2008). “An abuse of discretion
occurs when a decision is either manifestly unsupported by reason or so arbitrary
that it could not have been the result of a reasoned decision.” Id. at 620-21, 668 S.E.2d
at 373 (citations and quotation marks omitted).
B. Recoverable Fees
In its order awarding attorneys’ fees, the trial court held:
The requirements of N.C. Gen. Stat. § 6-21.6 are satisfied
to make the reciprocal attorneys’ fee provision in the Lease
valid and enforceable, because: the Lease is a business
contract; the parties executed the contract by hand; and the
terms and conditions concerning a possible award of
attorneys’ fees and legal expenses apply with equal force to
Plaintiffs and Lee of Raleigh, Inc.
On appeal, defendants contend that the trial court erred in awarding attorneys’ fees
pursuant to that section. Defendants note that attorneys’ fees are generally not
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recoverable absent express statutory authority, and that the fees in the instant case
should have been enforced under N.C. Gen. Stat. § 6-21.2, not N.C. Gen. Stat. § 6-
21.6. We disagree.
The statute upon which the trial court relied provides:
Reciprocal attorneys’ fees provisions in business contracts
are valid and enforceable for the recovery of reasonable
attorneys’ fees and expenses only if all of the parties to the
business contract sign by hand the business contract.
N.C. Gen. Stat. § 6-21.6(b) (2015). By contrast, the statute upon which defendants
rely provides:
Obligations to pay attorneys’ fees upon any note,
conditional sale contract or other evidence of indebtedness,
in addition to the legal rate of interest or finance charges
specified therein, shall be valid and enforceable, and
collectible as part of such debt, if such note, contract or
other evidence of indebtedness be collected by or through
an attorney at law after maturity, subject to the following
provisions:
...
(2) If such note, conditional sale contract or other evidence
of indebtedness provides for the payment of reasonable
attorneys’ fees by the debtor, without specifying any
specific percentage, such provision shall be construed to
mean fifteen percent (15%) of the “outstanding balance”
owing on said note, contract or other evidence of
indebtedness.
N.C. Gen. Stat. § 6-21.2(2) (2015). Defendants contend that the lease agreement at
issue is not a “business contract,” but is rather “evidence of indebtedness,” and that
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the provisions of N.C. Gen. Stat. § 6-21.2 apply, rather than those of N.C. Gen. Stat.
§ 6-21.6. Defendants therefore contend that the amount of attorneys’ fees owed were
capped at 15% of the “outstanding balance” on the lease.
Defendants concede that, pursuant to N.C. Gen. Stat. § 6-21.6, “under most
commercial leases entered today, a Landlord could choose to seek actual reasonable
attorneys’ fees under reciprocal attorneys’ fee provisions such as Section 31.6 of the
Lease, rather than seek a reasonable attorneys’ fee, under G.S. § 6-21.2, of 15% of the
outstanding balance.” Defendants contend, however, that N.C. Gen. Stat. § 6-21.6
was not effective when the lease was signed.
N.C. Gen. Stat. § 6-21.6 became effective on 1 October 2011. In their brief,
defendants concede that Lee executed the lease on 3 October 2011, after the effective
date of the statute. The trial court likewise found that Hellner, as Lee’s president,
executed the lease on 3 October 2011, that Park and Hellner executed the guaranty
on 3 October 2011, and that Steven Fogel, a manager for plaintiffs, executed the lease
on 26 October 2011. It is therefore clear that the lease was executed after the effective
date of N.C. Gen. Stat. § 6-21.6, and that Lee, as signatory to the lease, was subject
to statutory attorneys’ fees as contemplated by N.C. Gen. Stat. § 6-21.6.
Defendants further contend, however, that Hellner and Park, as guarantors,
should not be subject to the same attorneys’ fees, as the guaranty they signed lacked
a reciprocal attorneys’ fee provision. It is true that Park was not a party to the lease,
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and Hellner only signed the lease in her capacity as a representative of Lee. It is also
true that the guaranty, on its own, does not satisfy the requirements of N.C. Gen.
Stat. § 6-21.6. However, this Court has held that an unconditional guaranty of
charges provided for in a lease can subject a guarantor, despite not being a party to
the lease itself, to liability for attorneys’ fees. See RC Assocs. v. Regency Ventures,
Inc., 111 N.C. App. 367, 374, 432 S.E.2d 394, 398 (1993) (“[t]he language in the
guaranty contract is sufficient to put a guarantor on notice that he will be liable for
attorney’s fees if he fails to make the guaranteed payment before the creditor finds it
necessary to employ an attorney to collect the debt”); Devereux Props., Inc. v. BBM &
W, Inc., 114 N.C. App. 621, 625, 442 S.E.2d 555, 557 (1994) (holding that, where a
guaranty agreement covered “each and every obligation of Tenant under this Lease
Contract[,]” and the lease required payment of attorneys’ fees, the guarantors were
likewise responsible for attorneys’ fees).
In the instant case, not only did the guaranty cover “each and every obligation”
under the lease generally, it specifically included “all damages including, without
limitation, all reasonable attorneys’ fees and disbursements incurred by Landlord or
caused by any such default and/or by the enforcement of the Guaranty.” Certainly,
if we have held that a general guaranty pertaining to “each and every obligation”
under the lease subjects the guarantor to liability for attorneys’ fees, one which
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explicitly cites attorneys’ fees must likewise subject the guarantor to liability for
attorneys’ fees.
It is clear, therefore, that the agreement was executed after the effective date
of N.C. Gen. Stat. § 6-21.6, that Lee is liable for attorneys’ fees as outlined in that
statute and the reciprocal attorneys’ fees provision of the lease, and that Hellner and
Park, as guarantors pursuant to a guaranty that explicitly notes liability for
attorneys’ fees, are likewise jointly and severally liable with Lee for attorneys’ fees.
We hold that the trial court did not err in its award of attorneys’ fees.
C. Amount of Fees
Defendants also challenge the amount of attorneys’ fees awarded. Defendants
contend that the trial court’s findings of fact are “general and conclusory, and not
sufficient to enable the reviewing Court to determine whether or not the award of
attorney’s fees was reasonable.” We agree.
“[I]n order for the appellate court to determine if the statutory award of
attorneys’ fees is reasonable the record must contain findings of fact as to the time
and labor expended, the skill required, the customary fee for like work, and the
experience or ability of the attorney.” Cotton v. Stanley, 94 N.C. App. 367, 369, 380
S.E.2d 419, 421 (1989). In its order awarding attorneys’ fees, the trial court found:
12. Counsel’s Affidavit outlines the rates and hours
billed for each of the timekeepers at Plaintiffs’ counsel’s
law firm, Smith Moore Leatherwood LLP, who worked on
this lawsuit.
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13. Counsel’s Affidavit outlines the legal costs incurred
by Plaintiffs through January 31, 2017, in connection with
bringing and pursuing this lawsuit to enforce their rights
under the Lease and Guaranty.
14. The Court is aware of the range of hourly rates
charged by law firms in Wake County as well as in North
Carolina for litigation of business contracts like this. The
Court finds that the hourly rates billed to Plaintiffs as set
forth in Counsel’s affidavit are fair and reasonable and
conform to or are less than hourly rates charged in and
around North Carolina and specifically in Wake County by
firms and attorneys with comparable experience in matters
of comparable complexity.
15. The pursuit of this matter by Plaintiffs reasonably
required written discovery, depositions of four fact
witnesses, and a Rule 30(b)(6) deposition, preparation for
trial, and summary-judgment motions practice. The Court
finds that the steps taken by Plaintiffs to enforce their
Lease and Guaranty were reasonable and necessary, and
that the time and labor expended by Plaintiffs’ counsel
were reasonable.
16. The Court finds that the costs incurred by Plaintiffs
were reasonable and necessary to enforce the Lease and
Guaranty.
In short, the trial court found that (1) counsel’s rates were set forth in an affidavit;
(2) those rates were comparable and reasonable for the work done, the subject matter
of the case, and the experience of the attorneys, (3) the specific work done by counsel
was reasonable and necessary, and therefore (4) the costs incurred by plaintiffs were
reasonable and necessary.
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Defendants contend that these findings were not supported by evidence in the
record, arguing that the affidavit itself is “too vague to provide sufficient competent
evidence to support the findings of fact in the Attorneys [sic] Fee Order[.]” The
affidavit in question was signed by the primary attorney in the case, and included
statements (1) that he was a Senior Associate with the firm, and had practiced law
since 2007 and in North Carolina since 2011; (2) that he billed at a rate of $260 per
hour in 2015 and 2016, and $285 per hour in 2017, as compared to his normal billing
rates of $260, $275, and $315 per hour in each of those respective years; (3) that
others worked on the case as well, and he included their billing rates. The attorney
also provided detailed tables of the names, hours worked, and dollars billed by
different attorneys, and the various expenses incurred throughout the proceedings,
to calculate his total amount.
However, the affidavit offers no statement with respect to comparable rates in
this field of practice. Nor did counsel offer comparable rates at the hearing on
attorneys’ fees. It is therefore clear that there was insufficient evidence before the
trial court of “the customary fee for like work” for the trial court to make a finding on
that point, and to award attorneys’ fees accordingly.
We hold that, with respect to the amount of attorneys’ fees awarded, the trial
court erred by making a finding with respect to “the customary fee for like work,”
absent evidence to support such a finding. We vacate the order with respect to the
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amount awarded, and remand that issue to the trial court. “On remand, the trial
court shall rely upon the existing record, but may in its sole discretion receive such
further evidence and further argument from the parties as it deems necessary and
appropriate to comply with the instant opinion.” Heath v. Heath, 132 N.C. App. 36,
38, 509 S.E.2d 804, 805 (1999).
AFFIRMED IN PART, VACATED AND REMANDED IN PART.
Judge TYSON concurs.
Judge DAVIS concurs in part and dissents in part by a separate opinion.
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DAVIS, Judge, concurring in part and dissenting in part.
I concur in the result reached by the majority in granting summary judgment
in favor of Plaintiffs. I respectfully dissent, however, from the portion of the
majority’s opinion vacating the trial court’s award of attorneys’ fees.
The majority holds that the trial court’s findings regarding the attorneys’ fees
award were unsupported by competent evidence because Plaintiffs’ affidavit in
support of their motion for fees did not expressly contain a statement with respect to
“comparable rates in the field of practice.” In my view, the trial court’s findings show
that it exercised its authority to take judicial notice of facts relevant to that issue,
which it was permitted to do. Finding of Fact No. 14 stated as follows:
14. The Court is aware of the range of hourly
rates charged by law firms in Wake County as well as in
North Carolina for litigation of business contracts like this.
The Court finds that the hourly rates billed to Plaintiffs as
set forth in Counsel’s affidavit are fair and reasonable and
conform to or are less than hourly rates charged in and
around North Carolina and specifically in Wake County by
firms and attorneys with comparable experience in matters
of comparable complexity.
This Court has previously upheld an award of attorneys’ fees pursuant to
which the trial court took judicial notice of customary hourly rates. In Simpson v.
Simpson, 209 N.C. App. 320, 703 S.E.2d 890 (2011), we held that “a district court,
considering a motion for attorneys’ fees . . . , is permitted, although not required, to
take judicial notice of the customary hourly rates of local attorneys performing the
same services and having the same experience.” Simpson, 209 N.C. App. at 328, 703
WFC LYNNWOOD I V. LEE OF RALEIGH, INC.
DAVIS, J., concurring in part and dissenting in part
S.E.2d at 895. Although Simpson involved the award of fees in connection with a
child custody modification issue, I am unable to discern any valid reason why a trial
court should not be permitted to similarly invoke the judicial notice doctrine in
connection with an award of attorneys’ fees under N.C. Gen. Stat. § 6-21.6.
I believe the findings contained in the trial court’s order with regard to the
award of attorneys’ fees were sufficient to satisfy N.C. Gen. Stat. § 6-21.6.
Accordingly, I dissent.
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