3410 Old Capitol Trail, LLC v. Megarents, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
3410 OLD CAPITOL TRAIL, LLC,
Successor by Merger to HUMES
PROPERTIES, LLC,
Plaintiff, C.A. No. N16C-05-014 FWW
V.
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MEGARENTS, INC., t/a )
Events Unlimited, )
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Defendant. )
Submitted: March 20, 2017
Decided: June 23, 2017
DECISION AFTER TRIAL
Thomas C. Marconi, Esquire, Losco & Marconi, P.A., 1813 North Franklin Street,
P.O. Box 1677, Wilmington, Delaware 19899; Attorney for Plaintiff.
Louis J. Rizzo, Jr., Esquire, Reger Rizzo & Darnall LLP, 1523 Concord Pike, Suite
200, Brandywine Plaza East, Wilmington, Delaware 19803; Attorney for
Defendant.
WHARTON, J.
I. INTRODUCTION
Below is the Court’s decision following a bench trial on February 13, 2017
and the submission of post-trial memoranda For the reasons set forth below, the
Court enters judgment in favor of Defendant Megarents, Inc., t/a Events Unlimited
and against Plaintiff 3410 Old Capitol Trail, LLC, Successor by Merger to Humes
Properties, LLC.
II. FACTS AND PROCEDURAL CONTEXT
This dispute centers on the nature of the relationship between the parties
upon the expiration of a commercial lease. Plaintiff 3410 Old Capitol Trail, LLC
(“3410”) is the successor by merger to the original lessor Humes Properties, LLC.
Under the lease, executed on January 6, 2004, Defendant Megarents, Inc.
(“Megarents”) leased storage space for a period of one year beginning on April l,
2004 with a base rent of $12,780.00, payable at the rate of $1,065.00 per month.
By its terrns, the lease expired on March 31, 2005. The parties agree that the lease
was not renewed. Nevertheless, Megarents continued to occupy the leased
premises until August 31, 2015 and continued to make payments to 3410. There
were gaps in the payments, however, with 3410 alleging that delinquencies accrued
in the period from July 1, 2010 through August 31, 2015. While most monthly
payments made during that period were for $1,065.00, other months the payments
ranged from $0.00 to $2,130.00. Megarents also made three payments of $500.00
and one of $130.00 between September 30, 2015 and December 5, 2015 after it
had vacated the leased premises.
Eventually, 3410 brought this lawsuit seeking damages of $28,476.10 for
unpaid rent, including late payment fees of 25%, interest, attorney’s fees, and
costs. For various reasons, both legal and factual, Megarents denies that it has any
liability to 3410.
A bench trial was held on February 13, 2017. At trial, each side presented a
single witness. Humberto Humes (“Humes”) represented 3410 and testified in
both its case-in-chief and in rebuttal. Philip Eckstrand (“Eckstrand”), founder and
president of Megarents, testified for the defense. Exhibits consisted of the lease,
3410’s Quickbooks record of lease payments, cancelled checks produced by
Megarents, 3410’$ running balance calculation, and 3410’s responses to Megarents
request for admissions
On direct examination, Humes explained that, after the lease expired, the
tenancy converted to a month-to-month lease under all of the same terms as the
original lease, including a 25% late fee if the monthly rental payment of $1,065.00,
due on the first of the month, was not paid within 10 days of the due date. The
balance of Humes’ direct testimony consisted of explaining how the total amount
of $21,328.50 that 3410 now claims it is due was calculated.
On cross-examination, Humes acknowledged that he never sent Megarents
any regular monthly invoices, late payment notices, or default notices. He did say
that he occasionally hand delivered notices to Eckstrand and a few times gave him
statements, but was not sure whether he gave Eckstrand Quickbooks invoices
(which did not reflect late fees) or late fee balances. In any event, no copies of
statements or notices were introduced into evidence. Humes was asked about the
total amounts paid by Megarents for each year from 2012 through 2015 and the
total amount of rent due, excluding any late charges for that same time frame.
Humes’ testimony on this issue was based on records produced at trial which
included 3410’s Quickbooks record of lease payments, cancelled checks from
Megarents to 3410 and its predecessor Humes Properties, LLC, and a running
balance calculation prepared by 3410’s counsel’s office. The running balance
document, which includes late fees, shows an amount due as of December 5, 2015
of $21,328.50. The Quickbooks record, which does not include late fees, shows an
open balance of $3,337.34 as of April 28, 2016. An open balance of $2,684.01
appears on April l, 2012, but after that no open balance appears again until March
1, 2014 when an open balance of $1,065.00 appears. Humes was unable to explain
the absence of an open balance from April 2012 to March 2014. As invoices are
docketed and payments are made, the open balance fluctuates between $0.00 and
$l,065.00 until the end of 2014 when the open balance is $0.00. Two invoices are
docketed in 2015_one for $1,065.00 on January l, 2015 and the other for
$5,956.48 on August 31, 2015. The open balance on August 31, 2015 is recorded
as $5,966.48. The final invoice is recorded as $3,337.34 on Apiil 28, 2016 with an
open balance of the same amount on the same date. No payments are recorded as
being made after a payment of $1,065.00 on December 22, 2014.
Eckstrand told a different story about the parties’ relationship after the lease
expired, He said Megarents stayed on as a tenant on a month-to-month basis. He
described the Space Megarents rented from 3410 as overflow space which
Megarents could always vacate if 3410 Secured another tenant. He claimed that
Megarents was never threatened with termination or eviction and never received
any late fee notice. He said that, if a 25% late charge had been applied, Megarents
simply would have moved out. When cross-examined, Eckstrand explained that
when the national economy took a downturn, his business suffered and it became
difficult to make consistent rental payments. He had a discussion with Humes,
telling Humes that Megarents would pay rent as best as it could, but if that did not
work out, Megarents would vacate the rental unit. ln Eckstrand’s telling, Humes
agreed because “something is better than nothing.”
Humes testified again in rebuttal. His testimony consisted of saying that he
did not recall having a conversation with Eckstrand in which Eckstrand told him
that Megarents would pay as best it could.
After trial, the parties submitted post-trial memoranda. The opening
memorandum was filed by 3410 on February 27, 2017. Megarents submitted its
memorandum on March 13th and 3410 replied on March 20th.
III. THE PARTIES’ CONTENTIONS
After the one year term of the lease expired on March 31, 2005, 3410
maintains that the lease continued on a month-to-month basis with all of the terms
of the lease, including the 25% late charge provision, remaining in effect until
August 31, 2015 when Megarents vacated the premises. As the unpaid balance
began to accrue, 3410’5 practice was to credit any payments to the oldest portion of
the balance first. Since the amounts paid by Megarents never equalled the monthly
rental plus the late fee, Megarents’ arrearage continued to grow, beginning with the
initial late fee assessment in July 2010. Megarents never became current. The
total of unpaid rent plus late fees is $21,328.20. By contrast, the total of unpaid
rent without late fees is $4,821.00. According to 3410, it was not required to
provide written notice to Megarents of its failure to pay rent on time or give it an
opportunity to avoid the late charges because it never declared Megarents in
default.
Megarents maintains that the lease executed in 2004 was not in effect after it
terminated in 2005, and so, the 25% late fee did not survive the expired lease.
Therefore, any damages attributable to the late payment fee cannot be recovered.
lnstead, the parties operated on a month-to-month basis Megarents also raises a
statute of limitations argument. lt points to 3410’s answers to Megarents’
responses to its request for admissions admitting that Megarents paid all of the rent
due in the three years immediately preceding this lawsuit as support for its
argument that 3410’s claim is barred by the three-year statute of limitations
Alternatively, Megarents argues that, to the extent the original lease is deemed to
control the parties’ relationship, 3410 failed to comply with its notice and cure
provisions and has waived the default provisions for unpaid rent and late charges
In reply, 3410 argues that Megarents acknowledged that the lease remained
in effect in its responses to certain interrogatories and requests for admission and in
the pre-trial stipulation. As to Megarents’ statute of limitations argument, 3410’s
position is that no part of the $21,328.50 balance it now seeks is in excess of three
years old because payments made by Megarents were applied first to past due
amounts owed on the account. Moreover, 3410 argues that Megarents was
required to plead the statute of limitation as an affirmative defense and its failure to
do so constitutes a waiver of that defense. Finally, 3410 believes that Megarents’
waiver argument is itself waived since it was not raised as an affirmative defense,
nor was it mentioned in the pre-trial stipulation.
IV. STANDARD OF REVIEW
In a bench tiial, “the Court is the fact-finder and the plaintiff must prove
each claim by a preponderance of the evidence. A preponderance of the evidence
exists upon ‘the side on which the greater weight of the evidence is found.”’l
“Because the Court is the finder of fact, it is up to the Court to weigh the
credibility of witnesses and resolve conflicts in witness testimony.”2
V. DISCUSSION
It is unfortunate, of course, that the parties, after having undertaken the
effort to execute a comprehensive written lease detailing their respective rights and
responsibilities in 2004, were not as conscientious about defining their relationship
when that lease expired in 2005. Nonetheless, it appears that after the expiration of
the lease in 2005, the parties continued on as before, with Megarents occupying the
same space and paying the same rent_$l,065.00 per month_until July 2010
when Megarents missed the first of three consecutive rental payments
At trial, Humes was questioned about the three-year period from January l,
2012 through August 31, 2015, a period which would well exceed the three-year
statute of limitations period if that period were to apply.3 Based on the records
introduced at trial, the Court finds that the total amount of rent due at the rate of
1 Patel v. Patel, 2009 WL 427977, at *3 (Del. Super. Feb. 20, 2009) (quoting Reynolds v.
Reynolds, 237 A.2d 708, 711 (Del. 1967)).
2 Masterson-Carr v. Anesthesia Servs., P.A., 2015 WL 5168557, at *3 (Del. Super. Aug. 28,
2015).
3 The Complaint was filed on May 2, 2016.
$1,065.00 per month for those 44 months was $46,860.00_$12,780.00 per year
from 2012 through 2014 and $8,520.00 from January through August 2015.
Obviously, this figure would be the correct amount due only if the 25% late fee did
not apply. Payments made by Megarents from January l, 2012 through December
5, 2015, when Megarents made its last payment, were $49,585.00.4 The Court
finds that Megarents made 14 payments totaling $14,779.00 in 2012, l3 payments
totaling $11,585.00 in 2013, 13 payments totaling $l3,845.00 in 2014, and 12
payments totaling $9,350.00 in 2015.5 lf the Court only looks to the statute of
limitations period going back to May 2013, Megarents paid $33,676.00. Rent due
for that 28 month period from May 2013 through August 2015 at the rate of
$l,065.00 per month, not including any claimed late fees, was $29,840.00. Thus, it
is clear to the Court that 3410 is not entitled to any recovery unless the late fee
provision of the original lease applies regardless of the application of the statute of
limitations
4 This amount is based on information drawn from the Quickbooks record of lease payments
3410’s running balance calculation, and Megarents cancelled checks
5 To the extent that these amounts disagree with Humes’ testimony that the amount paid by
Megarents during this period was $47,429.00 ($12,649.00 in 2012, $12,650.00 in 2013,
$12,780.00 in 2014 and $9,350.00 in 2015) on total rent due without late fees of $46,860.00, the
Court relies on its own calculation. The Court finds the difference of $2,156.00 to be immaterial
for analytical purposes because both amounts exceed the rent due without late fees The
Affidavit of Philip Eckstrand in Support of Defendant’S Answer Pursuant to 10 Del. C. § 3901
claims an overpayment by Megarents of $999.00 in 2012, an underpayment of $130.00 in 2013
(paid in September 2015), no open balance in 2012, 2013, or 2014, and an overpayment of
$200.00 in 2015. D.I. 6. Similarly, any difference with the Court’s calculations is analytically
immaterial
Between the two witnesses, the Court finds by a preponderance of the
evidence Eckstrand to be the more credible. While Eckstrand was clear that he
never received any late charge notice, was never threatened with termination or
eviction, and was never notified that Megarents was in default because of late
payments until after it vacated the premises, Humes was less so. He acknowledged
that 3410 did not send monthly rent invoices, late payment notices, or default
notices to Megarents, but claimed that he occasionally hand delivered statements to
Eckstrand, although he was not sure whether he gave Eckstrand a Quickbooks
statement or ones with balances reflecting the 25% late fee. Humes did not
produce any such statements Tellingly, 3410 did not produce any account record
created during the tenancy, showing a running balance that included late fees The
Quickbooks account did not include any late fees, even when it showed an open
balance. lt appears that the only account record showing late fees was the running
account prepared by the office of 3410’s attorney subsequent to the tenancy.
Eckstrand testified that he had a conversation with Humes in which he told
Humes that, due to a decline in Megarents’ business, it would pay rent as best it
could. lf that was not satisfactory, Megarents would vacate. He further testified
that Humes agreed to that arrangement because, from 3410’s perspective, some
rental income was better than no rental income. Eckstrand made the rather obvious
point that, had the rent effectively increased by 25% per month as a result of
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recurring late fees, Megarents simply would have vacated the rental unit rather
than allow those charges to accumulate. In response, Humes testified that he did
not recall having any such conversation or making any such agreement with
Eckstrand. The Court finds by a preponderance of the evidence that Eckstrand’s
testimony on this point is more credible as well. Once Megarents began to have
difficulty with timely rental payments, 3410 consented to accept Megarents’ best
efforts to pay instead of, in effect, losing a tenant and running the risk of receiving
no income. In other words, the Court finds that 3410 felt that some income was
better than no income.
Having found those facts by a preponderance of the evidence, the Court next
applies them to the law. For context, the Court notes that any rental agreement for
a commercial rental unit is excluded from Delaware’s Landlord-Tenant Code, and
“[a]ny legal rights, remedies and obligations under any agreement for the rental of
any commercial rental unit shall be governed by general contract principles.”6
Further, the lease itself does not contemplate renewal after the expiration of its one
year term.
“[W]here a tenant under a term for a year or longer holds over after the
expiration of his terin, and continues to pay rent computed on an annual basis
6251)€1.€. §sioi(b).
ii
which is accepted by the landlord, the creation of a new tenancy is inferred.”7 Just
such a new tenancy is inferred here, with the parties agreeing that the new tenancy
was month-to-month. The new tenancy is governed by the terms of the expired
lease.8 Those terms would have included the late fee, but for what the Court finds
to be an oral modification of the month-to-month lease. That modification
occurred when Eckstrand offered to pay whatever Megarents could pay or, in the
alternative, vacate the premises Humes accepted the offer and continued to
receive rental payments albeit somewhat irregularly, but mostly in the amount of
$1,065.00. Eventually 3410 received all of the rent due at the rate of $1,065.00 per
month. This agreement effectively removed the 25% late fee lease term.
Support for this conclusion is found in the behavior of both parties
Megarents continued to pay rent at the original rate of $1,065.00 per month,
Obviously, it would have vacated the rental unit rather than continue to accumulate
25% late fees every month if it understood that term of the original lease was still
in effect. On the other hand, 3410 never invoiced for the late fees and none of its
contemporaneous records reflect those late fees Moreover, it made business sense
7 Ina'ependence Mall, Inc. v. Michael J. Wahl and Wahl Family Dentistry P.A., 2012 WL
6945505, at *5 (Del. Super. Dec. 31, 2012) (quoting Schwartzman v. Wilmington Stores C0., 123
A.2d 343, 346 (Del. Super. 1924)).
8 Independence Mall at*5 (citing Wilmington & N.R.R. C0. v. Del. Valley Ry. C0., Inc., 1999 WL
463705 at *3 (Del. Super. Mar. 30, 1999)); 52 C.J.S. Landlord & Tenant § 253 (2012); Bateman
v. 317 Rehoboth Ave., LLC., 878 A.2d 1176, 1185 (Del. Ch. 2005) (“[T]he relevance of cases
suggest all terms of a lease continue in force beyond termination of the lease into a holdover
tenancy has grown ever more tenuous, given the evolutionary trend of the Delaware Landlord-
Tenant Code towards narrower application.”).
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for 3410 to accept Megarents’ best efforts at payment as a long-term tenant rather
than run the risk of having a vacant non-income producing rental unit for an
indefinite period. Because of the Court’s factual findings and legal conclusions, it
is unnecessary to address the parties’ other contentions
VI. CONCLUSION
For the foregoing reasons, the Court enters judgment for Defendant Megarents,
Inc. t/a Events Unlimited and against Plaintiff 3410 Old Capitol Trail, LLC,
Successor by Merger to Humes Properties, LLC.
IT IS SO ORDERED.
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