FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FIRST NATIONAL MORTGAGE 

COMPANY, a California corporation,

No. 09-16377 Plaintiff-Appellee,

D.C. No. v. 

5:03-cv-02013-

FEDERAL REALTY INVESTMENT RMW

TRUST,

Defendant-Appellant. 

FIRST NATIONAL MORTGAGE 

COMPANY, a California corporation,

No. 09-16453 Plaintiff-Appellant,

D.C. No. v. 

5:03-cv-02013-

FEDERAL REALTY INVESTMENT RMW

TRUST,

Defendant-Appellee. 

FIRST NATIONAL MORTGAGE 

COMPANY, a California corporation,

No. 09-17012 Plaintiff-Appellee,

D.C. No. v. 

5:03-cv-02013-

FEDERAL REALTY INVESTMENT RMW

TRUST,

Defendant-Appellant. 

2011
FIRST NATIONAL MORTGAGE 

COMPANY, a California corporation, No. 09-17277

Plaintiff-Appellant, D.C. No.

v.  5:03-cv-02013-

FEDERAL REALTY INVESTMENT RMW

TRUST, OPINION

Defendant-Appellee. 

Appeal from the United States District Court

for the Northern District of California

Ronald M. Whyte, Senior District Judge, Presiding

Argued and Submitted

December 7, 2010—San Francisco, California

Filed February 1, 2011

Before: Dorothy W. Nelson, David R. Thompson, and

M. Margaret McKeown, Circuit Judges.

Opinion by Judge Thompson

2012 FIRST NATIONAL v. FEDERAL REALTY
COUNSEL

Patrick Ryan, San Francisco, California, for plaintiffappellee/appellant, First National Mortgage Co.

Cannon Shanmugam, Washington, DC, for defendantappellant/appellee Federal Realty Investment Trust.

OPINION

THOMPSON, Senior Circuit Judge:

Federal Realty Investment Trust (“Federal Realty”) appeals

the district court’s judgment, pursuant to a jury’s special verdict and the court’s findings of fact and conclusions of law,

in favor of First National Mortgage Company (“First National”) in First National’s action for breach of contract. First

National sought to recover for Federal Realty’s anticipatory

breach of a “Final Proposal” signed by the parties with respect

to commercial property in San Jose, California. The court

awarded First National $15.9 million in damages for lost rent

and for the loss of its “put” option under the Final Proposal.

First National cross-appeals and also appeals the district

2016 FIRST NATIONAL v. FEDERAL REALTY
court’s order denying it recovery of reasonable expert witness

fees pursuant to California Code of Civil Procedure § 998(d).

We conclude that the district court did not err in finding

that there was conflicting evidence as to whether the Final

Proposal was meant to be binding and whether the parties

intended the ten-year “put” and “call” options in it to provide

for a ten-year duration of the lease. The district court, therefore, properly submitted these questions to the jury. Substantial evidence supports the jury’s special verdict in favor of

First National on both issues. 

The district court also did not err in awarding First National

the full benefit of its bargain in the form of damages for both

lost rent and the value of its lost put option. Finally, the district court properly determined that First National could not

recover the amount of its expert witness fees under the relevant California statute, but could recover limited expert witness fees pursuant to federal law. Accordingly, we affirm in

all respects.

I. BACKGROUND

A. Factual history

Federal Realty is a publicly-traded real estate investment

trust that owns and develops shopping centers and mixed-use

projects. First National is a San Jose-based mortgage company. Beginning in the late 1990s, Federal Realty set out to

develop Santana Row, a mixed-use project in San Jose, which

was intended to be one of the nation’s largest mixed-use projects. As part of its efforts to develop Santana Row, Federal

Realty sought to acquire the property at issue in this case

(“the Property”). The Property was owned by D&R Partnership (not a party to this suit) and leased by it to First National.

During the relevant time, Hal Dryan had majority ownership

and “absolute control” of both First National and D&R Partnership.

FIRST NATIONAL v. FEDERAL REALTY 2017
Over the course of several years, First National and Federal

Realty engaged in protracted negotiations concerning the

Property. At various points in the negotiations, Federal Realty

offered either to buy the Property outright or to enter into a

ground lease for it—i.e., a lease of the underlying land with

the intention of redeveloping the buildings on the property.

The negotiations intensified in the summer of 2000, when the

parties exchanged several proposals regarding the terms for

the ground lease, including a “Counter Proposal” and a “Revised Proposal.” At this time, First National rejected Federal

Realty’s attempt to buy the Property outright, noting that “a

purchase agreement does not address [First National’s] long

term interests.” Finally, on August 25, 2000, Hal Dryan, on

behalf of First National, and Steve Guttman, the President and

CEO of Federal Realty, signed a document entitled “Final

Proposal.”

The Final Proposal is a one-page, nine-paragraph document

regarding a ground lease of the Property. It provides for a rent

of $100,000 per month, with increases of 3% annually. It

gives First National a ten-year “put” option, allowing First

National to require Federal Realty to buy the Property at any

time during the ten years. It also gives Federal Realty a “call”

option at the end of ten years, by which Federal Realty can

require First National to sell it the Property at that time. The

Final Proposal also provides that First National will be reimbursed $75,000 to buy out its current lease tenant, New

Things West. Under the Final Proposal, Federal Realty was to

“prepare a legal agreement for First National’s review to

finalize the agreement.” The effective date of the agreement

was to be the “date of vacating premises.” Finally, the last

clause of the Final Proposal provides: “The above terms are

hereby accepted by the parties subject only to approval of the

terms and conditions of a formal agreement.” A copy of the

Final Proposal is attached to this opinion as Appendix A.

Following the signing of the Final Proposal, the parties

engaged in extensive, but ultimately unsuccessful, negotia2018 FIRST NATIONAL v. FEDERAL REALTY
tions towards a formal agreement. As part of these negotiations, the parties exchanged several ideas regarding the

proposed lease, with Federal Realty suggesting a lease term

of 34 years, and First National suggesting a lease term of 50

years. The parties also discussed the possibility of an outright

sale, but First National refused to sell the Property for less

than $15 million.

While these negotiations were ongoing, First National gave

New Things West notice to vacate the premises. First

National then informed Federal Realty of the notice to vacate

and asked to be reimbursed for any accompanying loss in

rent. In a letter dated May 11, 2001, Federal Realty rejected

any indication that it had to reimburse First National and

noted that “[b]ecause we have never resolved a number of significant business issues relating to the acquisition of the Property, we still do not have a binding agreement in place for that

acquisition.”

Soon thereafter, the real estate market took a turn for the

worse, and, although the parties exchanged several more

offers and counteroffers, they were unable to reach an agreement. When these efforts proved unsuccessful, First National

filed this action. It recovered damages for Federal Realty’s

anticipatory breach of the Final Proposal, and this appeal followed.

B. Procedural history

In its complaint, First National alleged that Federal Realty

had committed a breach of contract (and anticipatory breach)

by refusing to pay rent and repudiating First National’s “put”

to require Federal Realty to buy the Property. In response,

Federal Realty filed several motions to dismiss and for summary judgment. As relevant to this appeal, the district court

rejected Federal Realty’s argument that the Final Proposal

was not binding because of the last clause calling for a “formal agreement.” According to the court, although the extrinFIRST NATIONAL v. FEDERAL REALTY 2019
sic evidence presented “persuasively suggest[ed] that the

Final Proposal was conditional and that neither party intended

otherwise,” the last clause was reasonably susceptible to different interpretations, thereby precluding summary judgment.

The court also rejected Federal Realty’s argument that the

Final Proposal was not binding because it was missing an

essential provision—the duration of the lease. In doing so, the

court allowed First National to amend its complaint to allege

that “the ten year ‘put’ and ‘call’ provisions . . . were intended

by the parties, and each of them, to, and did, have a special

meaning, that is, to establish a lease term of ten years.” After

examining the extrinsic evidence, the court concluded that

First National’s interpretation of the events surrounding the

put and call options was “plausible” and sufficient for the

question to go to the jury.

The liability phase of the case was tried to a jury in June

2006. The jury found in favor of First National on its anticipatory breach claim. The jury found that the parties intended the

Final Proposal to be an enforceable agreement, and intended

the put and call options to set a ground lease duration of ten

years. The district court subsequently denied Federal Realty’s

motion for judgment as a matter of law or, in the alternative,

a new trial, concluding there was sufficient evidence to support the jury’s special findings.

The damages phase was tried to the court in April 2008.

The court ultimately awarded First National damages of

$15,901,274. Out of that amount, approximately $10.6 million, including interest, was based on lost rent from the

ground lease, and approximately $5.2 million was based on

Federal Realty’s breach of First National’s put option. The

court specifically found that to receive the “full benefit of its

bargain,” First National was entitled to recover damages for

both breach of the lease and breach of its put option.

The district court also denied First National’s motion to

recover certain expert witness fees under California Code of

2020 FIRST NATIONAL v. FEDERAL REALTY
Civil Procedure § 998(d), which was based on First National’s

pre-trial offer to compromise that Federal Realty rejected. The

court found that First National reasonably incurred $358,811

in expert witness fees. However, First National could not

recover those fees, but was limited to a recovery of expert

witness fees under federal law, pursuant to this court’s decision in Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167-68 (9th

Cir. 1995).

II. DISCUSSION

At the outset, we reject First National’s argument that

because there was a full trial on the merits, Federal Realty is

precluded from challenging the district court’s denial of its

motions for summary judgment. See F.B.T. Prods., LLC v.

Aftermath Records, 621 F.3d 958, 963 (9th Cir. 2010) (“A

district court’s denial of summary judgment is subject to

review on appeal, despite full trial on the merits, ‘where the

district court made an error of law that, if not made, would

have required the district court to grant the motion.’ ” (citation omitted)). Moreover, to preserve this issue for appeal,

Federal Realty did not have to present it in a motion for judgment as a matter of law. See id. at 962-63 (holding that an

issue of law that “does not rest on the sufficiency of the evidence to support the jury’s verdict” need not be raised in a

motion for judgment as a matter of law to preserve the issue

for appeal). Rather, all Federal Realty had to do was “raise the

argument at some point before the judge submitted the case

to the jury,” which it did. See id. at 963. Accordingly, the district court’s determinations that portions of the Final Proposal

were ambiguous are “ ‘question[s] of law, subject to independent review on appeal.’ ” See id. (citation omitted).

A. Questions of law

1. Conditional nature of the Final Proposal

[1] Creation of a valid contract requires mutual assent.

Kruse v. Bank of Am., 202 Cal. App. 3d 38, 59 (1988).

FIRST NATIONAL v. FEDERAL REALTY 2021
“Where . . . there is a manifest intention that the formal agreement is not to be complete until reduced to a formal writing

to be executed, there is no binding contract until this is done.”

Smissaert v. Chiodo, 163 Cal. App. 2d 827, 830-31 (1958).

Thus, an “agreement to agree,” without more, is not a binding

contract. Autry v. Republic Prods., 30 Cal. 2d 144, 151-52

(1947).

[2] However, an agreement is not unenforceable merely

because it is subject to the approval of a formal contract. See,

e.g., Gavina v. Smith, 25 Cal. 2d 501, 504 (1944) (an exercise

of an option created a binding lease, even though a formal

instrument was to be prepared and signed later); Pac.

Improvement Co. v. Jones, 164 Cal. 260, 264 (1912) (finding

a binding contract for a lease, even though the testimony

showed that “the parties contemplated substituting for this

instrument a more formal lease”); Cappelmann v. Young, 73

Cal. App. 2d 49, 51-53 (1946) (finding an agreement to be a

binding lease, even though it provided that “[a] proper lease

shall be drawn within ten days”). Rather, “[w]hether a writing

constitutes a final agreement or merely an agreement to make

an agreement depends primarily upon the intention of the parties. In the absence of ambiguity this must be determined by

a construction of the instrument taken as a whole.” Smissaert,

163 Cal. App. 2d at 830.

[3] In this case, the court properly rejected Federal Realty’s argument that the Final Proposal was not binding. The

Final Proposal clearly states that its terms “are hereby

accepted by the parties subject only to approval of the terms

and conditions of a formal agreement” (emphases added).1 In

this regard, it is different from Rennick v. O.P.T.I.O.N. Care,

Inc., 77 F.3d 309 (9th Cir. 1996), on which Federal Realty

1Because both parties were involved in drafting the Final Proposal, we

reject Federal Realty’s suggestion that it should be construed against First

National. See Mitchell v. Exhibition Foods, Inc., 184 Cal. App. 3d 1033,

1042 (1986). 

2022 FIRST NATIONAL v. FEDERAL REALTY
relies. In finding no binding contract in Rennick, we noted

that the document in that case was titled “letter of intent” and

specifically provided that “this letter of intent is of no binding

effect.” Id. at 315-16. In this case, the document is titled

“Final Proposal,” and it specifically omits Federal Realty’s

standard non-binding clause, which it had inserted in earlier

drafts.

[4] Moreover, contrary to Federal Realty’s argument, calling something a “proposal,” instead of a “contract” or a

“lease,” does not necessarily mean it was not meant to be

binding, especially where the circumstances suggest otherwise. Cf. id. at 315 (“[C]alling a document ‘letter of intent’

implies, unless circumstances suggest otherwise, that the parties intended it to be a nonbinding expression in contemplation of a future contract, as opposed to its [sic] being a

binding contract.”). Here, the circumstances demonstrate that

the parties went from a “Counter Proposal,” to a “Revised

Proposal,” to a “Final Proposal.” In light of this, it cannot be

said, as a matter of law, that the Final Proposal was not meant

to be binding.

In reaching this conclusion, we do not question Federal

Realty and the amici curiae’s assertion that non-binding preliminary agreements play an important role in real estate

transactions. We do note, however, that at times it is equally

important for the parties to be certain that their interim agreements in the midst of protracted negotiations can be enforced.

As the California Supreme Court has noted,

[w]here the parties . . . have agreed in writing upon

the essential terms of the lease, there is a binding

lease, even though a formal instrument is to be prepared and signed later. The formal instrument may

be more convenient for purposes of recordation and

better designed to prevent misunderstanding than the

other writings but it is not essential to the existence

of the lease. “The mere fact that a written lease was

FIRST NATIONAL v. FEDERAL REALTY 2023
in contemplation does not relieve either of the contracting parties from the responsibility of a contract

which was already expressed in writing. When one

party refuses to execute the lease according to the

contract thus made, the other has a right to fall back

on the written propositions as originally made, and

the absence of the formal agreement contemplated is

not material.”

Gavina, 25 Cal. 2d at 504 (internal citations omitted). As

such, the fact that the parties in this case were negotiating a

new contract to replace the Final Proposal did not relieve

either of them from their obligations under the Final Proposal,

which was an existing contract.

2. Omission of an essential element

[5] To comply with the Statute of Frauds, there must be

“some note or memorandum . . . subscribed by the party to be

charged.” Cal. Civ. Code § 1624(a). “A memorandum satisfies the statute of frauds if it identifies the subject of the parties’ agreement, shows that they made a contract, and states

the essential contract terms with reasonable certainty.” Sterling v. Taylor, 40 Cal. 4th 757, 766 (2007). In this case, even

assuming the Final Proposal falls within the Statute of Frauds

as Federal Realty contends, we reject the argument that it is

not binding because it omits an essential term in the form of

the duration of the lease.

[6] The mere fact that a lease term is “essential” does not

mean that it has to be express in the contract. On the contrary,

although extrinsic evidence cannot be used to supply an

essential term, it can be used “to explain essential terms that

were understood by the parties but would otherwise be unintelligible to others.” Id. at 767. Indeed, “California courts

have not hesitated to imply a term of duration when the nature

of the contract and surrounding circumstances afford a rea2024 FIRST NATIONAL v. FEDERAL REALTY
sonable ground for such implication.” Consol. Theatres, Inc.

v. Theatrical Stage Emps. Union, 69 Cal. 2d 713, 727 (1968).

[7] In this case, the district court did not err in allowing

extrinsic evidence to be introduced to determine whether the

lease duration was completely absent or whether it could be

implied from the ten-year put and call options. California has

long abandoned a rule that would limit the interpretation of a

written instrument to its four corners. See Pac. Gas & Elec.

Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33,

37 (1968). Instead, under the California parol evidence rule,

“[t]he test of admissibility of extrinsic evidence to explain the

meaning of a written instrument is not whether it appears to

the court to be plain and unambiguous on its face, but whether

the offered evidence is relevant to prove a meaning to which

the language of the instrument is reasonably susceptible.” Id.

Thus, 

[w]here the meaning of the words used in a contract

is disputed, the trial court must provisionally receive

any proffered extrinsic evidence which is relevant to

show whether the contract is reasonably susceptible

of a particular meaning. Indeed, it is reversible error

for a trial court to refuse to consider such extrinsic

evidence on the basis of the trial court’s own conclusion that the language of the contract appears to be

clear and unambiguous on its face. Even if a contract

appears unambiguous on its face, a latent ambiguity

may be exposed by extrinsic evidence which reveals

more than one possible meaning to which the language of the contract is yet reasonably susceptible.

Morey v. Vannucci, 64 Cal. App. 4th 904, 912 (1998) (internal citations omitted).

The dispute in this case is whether the Final Proposal provides for the duration of the lease. Federal Realty contends

that it does not. First National, on the other hand, argues that

FIRST NATIONAL v. FEDERAL REALTY 2025
a ten-year duration is implied through a combined reading of

the ten-year put and call provisions. The question for the

court, therefore, is whether the language of the Final Proposal

is “reasonably susceptible” of either one of the two interpretations. Pac. Gas & Elec. Co., 69 Cal. 2d at 37. 

[8] We conclude that it is. By its terms, the Final Proposal

allows First National to compel Federal Realty to buy the

Property at any time within ten years and Federal Realty to

compel First National to sell the Property to it at the end of

ten years. As extrinsic evidence showed, the Property was

crucial to Federal Realty’s development of Santana Row.

Moreover, the parties agreed to enter into a lease—instead of

an outright sale—due to First National’s reluctance to sell

immediately. It was understood that as soon as Federal Realty

was able to force a sale of the Property (i.e., at the end of ten

years), it would do so. Accordingly, the court did not err in

concluding that the Final Proposal was “reasonably susceptible” of either one of the two interpretations asserted by the

parties, and therefore “extrinsic evidence relevant to prove

either of such meanings [was] admissible.” See id. at 40.

[9] The district court also did not err in letting the jury

resolve the conflict. “Where the interpretation of contractual

language turns on a question of the credibility of conflicting

extrinsic evidence, interpretation of the language is not solely

a judicial function. As trier of fact, it is the jury’s responsibility to resolve any conflict in the extrinsic evidence properly

admitted to interpret the language of a contract.” Morey, 64

Cal. App. 4th at 912-13 (internal citations omitted).

B. Sufficiency of the evidence

We review de novo the denial of a motion for judgment as

a matter of law. Lakeside-Scott v. Multnomah Cnty., 556 F.3d

797, 802 (9th Cir. 2009). We view the evidence in the light

most favorable to the party in whose favor the jury returned

a verdict and draw all reasonable inferences in its favor. Id.

2026 FIRST NATIONAL v. FEDERAL REALTY
The verdict will be upheld if it is supported by substantial evidence, “even if it is also possible to draw a contrary conclusion.” Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002).

“ ‘Although the court should review the record as a whole, it

must disregard evidence favorable to the moving party that

the jury is not required to believe, and may not substitute its

view of the evidence for that of the jury.’ ” Id. (citation omitted).

[10] In this case, substantial evidence supports the jury’s

finding that the parties intended the Final Proposal to be an

enforceable agreement. Michael Rubenstein, a minority owner

of both the D&R Partnership and First National, and one of

the negotiators of the Final Proposal on behalf of First

National, testified that when Guttman learned he could not

enforce an earlier version of the agreement because it was not

signed, he told First National that from that point on, he

wanted offers signed so that he could hold First National to

them. Guttman allegedly stated: “If we’re going to do anything together, I want both parties signing off [on] the document, and I want an enforceable contract now.” Thereafter,

Guttman sent First National an offer dated August 24, 2000

which, for the first time in the negotiations, omitted Federal

Realty’s theretofore standard non-binding provision. Guttman

allegedly wanted language that would ensure that “there was

no way either party . . . could change any of the major points

in the agreement.” Soon after that, the Final Proposal was

signed by the executive officers of both companies.

[11] Dryan testified that his understanding of the “subject

only to approval” clause of the Final Proposal was that “the

only way that the Final Proposal can be changed or modified,

or even replaced, was by agreement upon the formal agreement, and if there was no formal agreement, then we stay with

the Final Proposal, which was a contract.” Similarly, Rubenstein testified that the parties intended the Final Proposal to

concern the major points of the contract and the “legalese and

FIRST NATIONAL v. FEDERAL REALTY 2027
the minor points” would be taken care of in the formal agreement.

[12] As soon as the Final Proposal was signed, First

National held an employee meeting to announce that it had

reached “an agreement with Federal Realty” and that it

“would be moving before or by December 30th of 2000.”

Federal Realty also appears to have treated the Final Proposal

as binding. Within a month of signing the Final Proposal,

Federal Realty included in its internal cost reports costs for

tenant buyouts, brokerage costs, and other costs for the acquisition of the Property.

[13] Substantial evidence also supports the jury’s finding

that the parties intended the put and call options in the Final

Proposal to set a ground lease duration of ten years. For

example, Dryan testified that the parties discussed that the

lease duration would be ten years and that it was “Guttman’s

suggestion” to use the combination of the put and call options

to set the lease duration. There was also testimony at trial that

Guttman told First National that Federal Realty “would” exercise the call option at the end of the ten years if the put option

was not exercised first. According to Rubenstein, “that was

[Federal Realty’s] insurance policy in case [First National]

didn’t exercise [its] put within the ten-year lease term.” As the

district court observed, because Federal Realty intended to put

millions of dollars into the improvement of the Property, the

jury was entitled to credit the above testimony and to find that

the call provision assured Federal Realty that it would own

the Property no later than at the end of the ten years.

[14] Based on the above, substantial evidence supports the

jury’s verdict with respect to the binding nature of the Final

Proposal and the duration of the lease. Even if the jury was

presented with conflicting evidence as to these issues, it was

the jury’s province to make any credibility determinations and

to resolve any factual disputes. See Pavao, 307 F.3d at 918.

2028 FIRST NATIONAL v. FEDERAL REALTY
Accordingly, the district court did not err in denying Federal

Realty’s motion for judgment as a matter of law.

C. Damages award

[15] With regard to the amount of damages, Federal Realty

only challenges the district court’s conclusion that First

National could recover both lost rent and damages for the

breach of the put option.2 According to Federal Realty, these

two awards are “irreconcilable” because: (1) by awarding

damages for the full implied ten-year lease term, the court

must have assumed that First National would never have exercised its put option, but (2) by awarding damages for the

breach of the put option based on its value at the time of the

breach, the district court must have assumed that First

National would have immediately exercised its put option.

Federal Realty also appears to argue that by deciding to sue

immediately, First National was electing to treat the contract

as repudiated, and thus should not recover for the loss of the

put option.

Federal Realty’s reasoning, however, is faulty. The district

court never assumed that First National would have exercised

its put option on the date of the breach. In fact, the district

court rejected the suggestion that First National’s treatment of

repudiation as a breach had the effect of an exercise of the

option. Instead, what the court did is value the put option as

of the date of the breach.

Similarly, Federal Realty’s argument as to the “election of

remedies” is misplaced. When one party repudiates a contract,

the injured party can either “treat the repudiation as an antici2We review de novo the legal conclusion that damages are available,

United States v. Timberland Paving & Constr. Co., 745 F.2d 595, 599 (9th

Cir. 1984), and review for clear error the district court’s factual findings

in support of an award of damages, Bergen v. F/V St. Patrick, 816 F.2d

1345, 1347 (9th Cir. 1987). 

FIRST NATIONAL v. FEDERAL REALTY 2029
patory breach and immediately seek damages for breach of

contract, thereby terminating the contractual relation between

the parties,” or he can “treat the repudiation as an empty

threat, wait until the time for performance arrives and exercise

his remedies for actual breach if a breach does in fact occur

at such time.” Taylor v. Johnston, 15 Cal. 3d 130, 137 (1975).

In this case, the district court found that First National

decided to treat the repudiation as an anticipatory breach.

Having done so, First National was still entitled to recover the

loss of the bargain represented by the contract.

[16] The full benefit of the Final Proposal for First

National would have been a complete ten-year lease term followed by a forced sale to Federal Realty. Thus, evidence at

trial demonstrated that a “rational economic actor” in First

National’s position, seeing a virtually guaranteed 12% yield

on investment, would have waited until the end of the lease

to exercise the put option. This conclusion is not undercut by

Dryan and Rubenstein’s inability to affirmatively say at trial

when they would have exercised the put option. As the district

court noted, because it was Federal Realty’s breach that took

away First National’s ability to choose when to exercise the

option, Federal Realty cannot benefit from that uncertainty.

See Zinn v. Ex-Cell-O Corp., 24 Cal. 2d 290, 297-98 (1944);

Macken v. Martinez, 214 Cal. App. 2d 784, 790 (1963).

[17] Finally, the court properly valued the option as of the

date of the breach. As the court explained, the mere fact that

First National would have exercised its option at some particular time in the future does not mean that it gets to receive the

value as of that date. Rather, as already noted, First National

was faced with a choice: (1) treat the repudiation as a breach

and seek damages, or (2) wait until the time of performance.

Thus, First National could have vacated the premises and

waited until ten years later to exercise its option. In that case,

it would have been entitled to the value of the option as of

that date. By deciding instead to treat the repudiation as a

breach and sue immediately, First National elected to have its

2030 FIRST NATIONAL v. FEDERAL REALTY
damages valued as of the date of the breach. See Lucente v.

IBM Corp., 310 F.3d 243, 259-63 (2d Cir. 2002) (concluding

that where plaintiff decided to treat defendant’s repudiation as

a breach of his restricted stock and stock options, he was only

entitled to damages as “measured from the date of the

breach”); Scully v. US WATS, Inc., 238 F.3d 497, 512-13 (3d

Cir. 2001) (awarding damages as of the date of the breach and

noting that an award of damages based on a prediction of

what a stock’s price will be in the future “would be particularly problematic” because of the amount of speculation for

which it calls); cf. Hermanowski v. Acton Corp., 729 F.2d

921, 922 (2d Cir. 1984) (per curiam) (concluding that where

plaintiff ignored the repudiation, he was entitled to damages

based on the “difference between the market value of the

stock and the option price” on the date he unsuccessfully tried

to invoke the option).

Accordingly, the district court did not err in awarding First

National damages for both lost rent and loss of the put option,

and it did not err in valuing the put option as of May 11, 2001

—the date of the breach.

D. First National’s recovery of expert witness fees

[18] In its separate appeal, First National argues the district

court erred in following Aceves, 68 F.3d 1160, and applying

federal law to First National’s request for reimbursement of

reasonable expert witness fees. We review the district court’s

choice of law de novo. Id. at 1167.

[19] In Aceves, a defendant whose offer of judgment had

been rejected sought reimbursement of its expert witness fees

under the applicable provision of the California offer-ofjudgment statute, Cal. Civ. Proc. Code § 998(c). 68 F.3d at

1167. At the outset, the Aceves court noted that “[f]ederal and

California offer of judgment rules differ in the level of reimbursement for expert witness costs they allow.” Id. Whereas

California allows a defendant to recover reasonable expert

FIRST NATIONAL v. FEDERAL REALTY 2031
witness fees in full, Cal. Civ. Proc. Code § 998(c), federal law

allows a defendant to recover only forty dollars per day per

witness, 28 U.S.C. § 1821(b). Aceves, 68 F.3d at 1167. The

Aceves court held that “[b]ecause reimbursement of expert

witnesses fees is an issue of trial procedure, . . . . federal law

should control the reimbursement of expert witnesses in federal courts sitting in diversity jurisdiction.” Id. at 1167-68.

The court added that this holding was “in accord with the

holdings of several other circuits.” Id. at 1168 (citing cases

from the First, Tenth, and Eleventh Circuits).

[20] Aceves is controlling here. First National is seeking

reimbursement of its expert witness fees under the provision

of the California offer-of-judgment statute applicable to plaintiffs, Cal. Civ. Proc. Code § 998(d). Just like in Aceves,

“[f]ederal and California offer of judgment rules differ in the

level of reimbursement for expert witness costs they allow.”

68 F.3d at 1167. Whereas California allows the plaintiff to

recover reasonable expert witness fees incurred, Cal. Civ.

Proc. Code § 998(d), federal law allows the plaintiff to

recover only forty dollars per day per witness, 28 U.S.C.

§ 1821(b). Indeed, the applicable federal rule is the same as

it was in Aceves because expert witnesses in federal court are

entitled to forty dollars per day regardless of whether they are

called by the prevailing defendant or plaintiff. See 28 U.S.C.

§ 1821(b).

First National’s argument that applying the federal rule in

this case would lead to forum shopping is unavailing. The

Aceves court rejected that argument with respect to 28 U.S.C.

§ 1821(b). See 68 F.3d at 1168 (“More important, we think it

exceedingly unlikely that section 1821(b) provides litigants an

incentive to sue in or remove to federal courts.” (emphasis

added)). First National’s argument that the Aceves court failed

to provide any basis for this conclusion is equally not persuasive. On the contrary, the Aceves court noted that its decision

that “federal law should control the reimbursement of expert

witnesses in federal courts sitting in diversity jurisdiction”

2032 FIRST NATIONAL v. FEDERAL REALTY
was “in accord with the holdings of several other circuits.” Id.

(citing Chaparral Resources, Inc. v. Monsanto Co., 849 F.2d

1286, 1291-92 (10th Cir. 1988); Kivi v. Nationwide Mut. Ins.

Co., 695 F.2d 1285, 1289 (11th Cir. 1983); and Bosse v. Litton Unit Handling Sys., 646 F.2d 689, 695 (1st Cir. 1981)).

[21] Accordingly, we affirm the district court’s denial of

expert witness fees calculated according to California Code of

Civil Procedure § 998(d).

III. CONCLUSION

For the foregoing reasons, we affirm the district court’s

decision to allow the jury to determine whether the parties

intended the Final Proposal to be a binding contract and

whether they intended the put and call options in it to create

a ten-year lease term. Similarly, we affirm the district court’s

denial of Federal Realty’s motion for judgment as a matter of

law; the jury’s special verdict is supported by substantial evidence. We also affirm the district court’s award to First

National of damages for both lost rent and the value of its lost

put option, and we affirm the district court’s order regarding

the bill of costs. Finally, because Aceves, 68 F.3d 1160, is

controlling, we affirm the district court’s denial of First

National’s motion for recovery of expert witness fees calculated under California Code of Civil Procedure § 998(d).

AFFIRMED.

FIRST NATIONAL v. FEDERAL REALTY 2033
APPENDIX A

Final Proposal

1. Ground lease at $100,000 per month. Lease to include

increases of three (3%) annually.

2. First National is given a 10 year put at a capitalization

rate of 9% at the then current annual rental. Federal

Realty to cooperate with tax free exchange.

3. Federal Realty to be given a call at the end of ten years

at a 9% capitalization rate.

4. First National to be offered an option to lease office

space of up to 5000 square feet in the new Santana

Row complex at $4.00 per square foot per month, subject to the terms and conditions of a new lease.

5. First National to be reimbursed $75,000 to buy out the

current lease holder, New Things West.

6. Federal Realty to pay for the moving expenses of First

National Mortgage not to exceed $25,000.00.

7. Federal Realty to prepare a legal agreement for First

National’s review to finalize the agreement.

8. Effective date of agreement as of date of vacating

premises.

9. The above agreement must be accepted via fax to 408-

249-9214 no later than 10:00 a.m. California time on

August 25, 2000, at which time this counter offer will

automatically expire.

The above terms are hereby accepted by the parties subject

only to approval of the terms and conditions of a formal

agreement.

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