Tag: acceleration

Commercial Landlord’s Suit for Rent Damages Accruing After Possession Order Survives Tenant’s Res Judicata Defense

18th Street Property, LLC v. A-1 Citywide Towing & Recovery, Inc., 2015 IL App (1st) 142444-U examines the res judicata and collateral estoppel doctrines in a commercial lease dispute.

The plaintiff landlord obtained a possession order and judgment in late 2012 on a towing shop lease that expired March 31, 2013. 

About six months after the possession order, the lessor sued to recover rental damages through the lease’s March 2013 end date.  The defendant moved to dismiss on the basis of res judicata and collateral estoppel arguing that the landlord’s damage claim could have and should have been brought in the earlier eviction suit.  The trial court agreed, dismissed the suit and the lessor plaintiff appealed.

Held: Reversed.

Q: Why?

A:  Res judicata (claim preclusion) and collateral estoppel (issue preclusion) seek to foster finality and closure by requiring all claims to be brought in the same proceeding instead of filing scattered claims at different times.

Res judicata applies where there is a final judgment on the merits, the same parties are involved in the first and second case, and the same causes of action are involved in the cases.  

Res judicata bars the (later) litigation of claims that could have brought in an earlier case while collateral estoppel prevents a party from relitigating an issue of law or fact that was actually decided in an earlier case.  (¶¶ 20-21, 30)

In Illinois, a commercial landlord’s claim for past-due rent and for future rent on an abandoned lease are different claims under the res judicata test.

This is because the payment of future rent is not a present tenant obligation and a tenant’s breach of lease usually will not accelerate rent (i.e. require the tenant to immediately pay the remaining payments under the lease) unless the lease has a clear acceleration clause.  Each month of unpaid rent gives rise to fresh claims for purposes of res judicata.

The landlord’s remedy where a tenant breaches a lease is to (a) sue for rents as they become due, (b) sue for several accrued monthly installments in one suit, or (c) sue for the entire amount at the end of the lease.

The commercial lease here gave the landlord a wide range of remedies for the tenant’s breach including acceleration of rental payments. 

The tenant defendant argued that since the lessor failed to try to recover future rent payments in the earlier eviction case, it was barred from doing so in the second lawsuit.  The landlord claimed the opposite: that its claims for damages accruing after the possession order were separate and not barred by res judicata or collateral estoppel.

The court held that res judicata did not bar the lessor’s post-possession order damage suit.  It noted that while the lease contained an optional acceleration clause, it was one of many remedies the landlord had if the tenant breached.  The lease did not require the landlord to accelerate rents upon the tenant’s breach. 

The court also noted that the lease required the landlord to notify the tenant in writing if it (the landlord) was going to terminate the lease.  Since terminating the lease was a prerequisite to acceleration, the Court needed more evidence as to whether the lessor terminated the lease.  Without any termination proof, the trial court should not have dismissed the landlord’s suit.

Afterwords:

1/ If a lease does not contain an acceleration clause, a landlord can likely file a damages action after an earlier eviction case without risking a res judicata or collateral estoppel defense.

2/ If a lease contains mandatory acceleration language, the landlord likely must sue for all future damages coming due under the lease or else risk having its damages cut off on the possession order date.

 

 

Brannen v. Siefert: A (Legal Malpractice) Case Study (Ill. First Dist.)

image

The Featured Case: Brannen v. Siefert, 2013 IL App (1st) 122067, ¶ 52 (11.19.13)

 

The Facts: Plaintiffs – a land trustee and trust beneficiary – sued the Underlying Defendants, an attorney and his wife, for breach of a written real estate contract for the purchase of a home owned by the plaintiffs.  The strangely worded contract, drafted by Underlying Defendants, called for staggered payments of interest and principle over a several-year period to be credited towards the home’s purchase price.

The Underlying Defendants quickly breached and plaintiffs hired an attorney (the Former Attorneys) to collect the amounts owed under the contract.

The Former Attorneys (a solo practitioner and his professional corporation), unbeknownst to plaintiffs, declared a forfeiture of the contract by written notice to Underlying Defendants.  Several months later, the Underlying Defendants moved out.  At the time they vacated the property, the Underlying Defendants owed plaintiff about $150,000 and hadn’t made any payments for over two years.

The Underlying Case

Displeased with Former Attorneys’ performance, plaintiffs hired substitute counsel who filed a breach of contract suit against Underlying Defendants to recover past and future payments owed under the real estate contract.  The Underlying Defendants successfully moved to dismiss the lawsuit based on the Former Attorneys prior forfeiture notice.  The court found that the Underlying Defendants’ forfeiture remedy foreclosed a damages action by the plaintiffs.  The plaintiffs then sued the Former Attorneys for legal malpractice.

The Malpractice Suit

The thrust of plaintiff’s malpractice suit was that the Former Attorneys committed professional negligence by giving up plaintiffs’ contract rights without first consulting them and by failing to explain the legal effect of that remedial choice.  The Former Attorneys argued they did explain how a forfeiture would impact plaintiffs’ rights and that cancelling the contract was the proper remedy since plaintiffs’ primary goal was to retake the property; not recover damages.

After a trial, a jury entered judgment against the Former Attorneys for $199,500 and they appealed.

Held: Affirmed.  

Rules/Reasoning:

In Illinois, a legal malpractice plaintiff must establish: (1) an attorney owed the plaintiff’s a duty arising from the attorney-client relationship; (2) the attorney breached that duty; (3) the attorney’s breach of duty proximately caused actual damages to the plaintiff.  Expert testimony is usually required to prove that an attorney breached his professional duties to his client.  ¶ 45, 61. 

A legal malpractice plaintiff must prove not only that he would have won the underlying case but that the underlying defendant was solvent enough to pay a judgment.  But the required solvency showing isn’t stringent: the plaintiff doesn’t have to prove a  defendant’s net worth but only needs to show the defendant’s ability to at least partially pay a judgment. ¶ 63.

The jury found the plaintiffs’ expert more believable than the Former Attorneys’.  Plaintiffs’ expert testified that contractual forfeiture was the wrong remedy since under the Illinois Forcible Entry and Detainer Act (the “Forcible Act”) a contract seller like plaintiffs can sue for both possession and money damages.  735 ILCS 5/9-102(a)(5), 9-209 (plaintiff can sue for possession and damages).  The plaintiffs’ expert also testified that by declaring a forfeiture – when both Illinois law and the subject real estate contract allowed multiple remedies – the Former Attorneys prevented the plaintiffs from recovering nearly $150,000 in money damages.  ¶¶ 46-49.

The Court also found that plaintiffs established the Underlying Defendants’ solvency.  The trial evidence demonstrated that the Underlying Defendants could at least partially pay a judgment based on their income and other assets.  ¶ 65.  Because the plaintiffs proved each element of their legal malpractice case, the First District affirmed the jury verdict for the plaintiffs.

Take-aways: (1) To win the legal malpractice ‘case within the case’, a malpractice plaintiff must prove he would have won the underlying case but doesn’t have to precisely prove the malpractice defendant’s net worth. It is enough to show that the defendant has a source of income and is able of paying all or part of a judgment; (2) The Forcible Act provides for possession and money damages to a contract home seller where a buyer breaches an installment sales contract; and (3) the forfeiture remedy should be exercised with extreme caution.  That’s because if you nullify a contract, it can bar a later action to recover money damages for breach of contract.

 

The Ubiquitous “Excess Rent” Provision

The boilerplate “excess rent” or “rent differential” clause appears in many commercial leases.  Usually buried in a voluminous lease, no one pays much attention to it until the tenant vacates and the landlord sues for damages.  All of a sudden, the excess rent clause assumes critical importance as the landlord tries to prove up its damages.  The rent differential/excess rent section generally provides that when a tenant prematurely vacates commercial property, the landlord can recover the difference between (A) the present value of lease rent owed through the unexpired lease term and (B) the fair market rent for the unexpired term (rent through the balance of lease at lease rate minus market value of rent through lease expiration).  St. George Chicago, Inc. v. George J. Murges & Associates, Ltd., 296 Ill.App.3d 285 (1st Dist. 1998).  In Illinois, these rent differential terms are enforceable and will satisfy the lessor’s statutory duty to mitigate set forth in Section 9-213.1 of the eviction statute.

So if the breaching tenant was paying $1,000 a month under its lease, and the landlord can only find a replacement tenant who pays $600/month – the landlord can recover $400/month ($1,000 minus $600) times the numer of months left on the defaulting tenant’s lease.  Of course, if the market value is now $1,500/month – $500 more than the lease amount – the landlord cannot recover anything.  Instead, the landlord’s recovery will be limited to its damages incurred through the date the replacement tenant begins paying rent.