Court Opinion

ID: 6498835
Source: CourtListenerOpinion
Date Created: 2022-07-08 20:00:41.939959+00
Date Added: 2024-06-11T09:11:02.044020
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                             JUL 8 2022
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

ROSS DRESS FOR LESS, INC., a                     No.   21-35106
Delaware corporation,
                                                 D.C. No. 3:14-cv-01971-SI
              Plaintiff-counter-
              defendant-Appellant,
                                                 MEMORANDUM*
 v.

MAKARIOS-OREGON, LLC, an Oregon
limited liability company,

              Defendant-counter-claimant-
              Appellee,

 and

WALKER PLACE, LLC, an Oregon
limited liability company; et al.,

              Defendants.

ROSS DRESS FOR LESS, INC., a                     No.   21-35132
Delaware corporation,
                                                 D.C. No. 3:14-cv-01971-SI
              Plaintiff-counter-
              defendant-Appellee,

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
 v.

WALKER PLACE, LLC, an Oregon
limited liability company,

              Defendant,

 and

CHARLES W. CALOMARIS; et al.,

              Defendants-Appellants,

MAKARIOS-OREGON, LLC, an Oregon
limited liability company,

              Defendant-counter-claimant-
              Appellant.

                    Appeal from the United States District Court
                             for the District of Oregon
                    Michael H. Simon, District Judge, Presiding

                        Argued and Submitted May 10, 2022
                                 Portland, Oregon

Before: TALLMAN and CHRISTEN, Circuit Judges, and BLOCK,** District
Judge.

       Plaintiff-appellant/counter-defendant-appellee Ross Dress for Less, Inc. and

defendant-appellee/counter-plaintiff-appellant Makarios-Oregon, LLC appeal the

       **
             The Honorable Frederic Block, United States District Judge for the
Eastern District of New York, sitting by designation.
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district court’s judgment awarding $2.9 million in damages to Makarios for its

claims arising from Ross’s breaches of its lease of the Richmond Building in

Portland, Oregon. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we

affirm in part, reverse in part, and remand.1 Because the parties are familiar with

the facts of this case, we do not recite them here.

      We review de novo the district court’s interpretation of relevant lease

provisions and review for clear error the district court’s factual findings. See

OneBeacon Ins. Co. v. Hass Indus. Inc., 634 F.3d 1092, 1096 (9th Cir. 2011).

Because the district court’s jurisdiction was based on diversity of citizenship,

Oregon substantive law governs, see Feldman v. Allstate Ins. Co., 322 F.3d 660,

666 (9th Cir. 2003), and we are bound by decisions of the Oregon Supreme Court,

see In re Kirkland, 915 F.2d 1236, 1238–39 (9th Cir. 1990). When there is no

Oregon Supreme Court decision on point, we “must predict how the highest court

would decide the issue using intermediate appellate court decisions, decisions from

other jurisdictions, statutes, treatises, and restatements as guidance.” Id. at 1239.

      1. Ross first argues the district court erred by failing to apply issue

preclusion to Makarios’s counterclaims related to Section 16.01 of the lease.

      1
        We address the issue of Makarios’s withdrawn jury demand in a
concurrently filed opinion.
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“Issue preclusion arises in a subsequent proceeding when an issue of ultimate fact

has been determined by a valid and final determination in a prior proceeding.”

Nelson v. Emerald People’s Util. Dist., 862 P.2d 1293, 1296 (Or. 1993). Although

a state court ruled on Ross’s performance pursuant to Section 7.01 of the lease

during the forcible entry and detainer action that Makarios filed against Ross, that

proceeding pertained to Ross’s obligations during its lease term, not Ross’s

surrender obligations pursuant to Section 16.01. The state court did not rule on the

identical issues being litigated here, nor did Makarios have an opportunity to be

heard on those issues. See id. at 1296–97. The district court did not err in

rejecting Ross’s issue preclusion arguments.

      2. Next, Ross contends the district court erred when it declined to award

diminution-in-value damages pursuant to the economic waste doctrine for Ross’s

failure to perform its contractual repair, restoration, and separation obligations at

the end of the lease. Although Ross does not appear to challenge the district

court’s conclusion that Ross materially breached the lease, it argues the district

court’s measure of damages was error.

      Pursuant to Oregon’s economic waste doctrine, an injured plaintiff (or

counter-plaintiff) in a contractual dispute usually recovers the “cost of repair” to

remedy the defect caused by the defendant’s (or counter-defendant’s) breach.

                                           4
Montara Owners Ass’n v. La Noue Dev., LLC, 353 P.3d 563, 571 (Or. 2015).

“However, Oregon courts use an alternative measure of damages—the diminution

in the market value of the property—when the cost of repair is not ‘the prudent

remedy to apply’ because that remedy would create ‘economic waste.’” Id.

(quoting Turner v. Jackson, 11 P.2d 1048, 1053 (Or. 1932)). Diminution-in-value

damages comprise the difference between the value of the leased property after the

defendant’s breach and the value of the leased property upon full compliance with

the lease’s terms. Id.

      Here, the district court concluded that Ross could not “receive the benefit of

the economic waste doctrine” because it did not meet its burden of producing

sufficient evidence of diminution in value. See, e.g., Fisher Props., Inc. v. Arden-

Mayfair, Inc., 798 P.2d 799, 802 (Wash. 1990) (explaining “[t]he plaintiff must

come forward with evidence on only one of the measures of damages and then the

burden of production shifts to the defendant to present evidence that the other

measure of damages is less”). Ross’s position was that none of Makarios’s repair,

restoration, and separation costs would result in any value to the property because

post-lease evidence suggested a prudent landlord would not actually undertake

such alterations and repairs. But Ross offered only a “conclusory assertion” that

the separation offered no value if the Richmond and Failing Buildings were

                                          5
commonly owned. At the conclusion of Ross’s lease, the buildings were not

commonly owned, and Ross did not provide evidence comparing the fair market

value of the Richmond Building as it stood on September 30, 2016 with its

estimated fair market value if Ross had fulfilled its separation obligations and

without assuming common ownership. Likewise, Ross offered only a “conclusory

assertion” that the repairs that were needed to comply with Section 16.01 offered

no value. We agree with the district court that Ross failed to meet its burden to

invoke the economic waste doctrine. The district court did not err in awarding

repair, restoration, and separation costs to Makarios.

      3. Last, Ross challenges the district court’s calculation of prejudgment

interest, arguing the amount of damages was not readily ascertainable and that,

even if it were, the district court should have applied the contractual prejudgment

interest rate of six percent, not Oregon’s statutory rate of nine percent.2 Makarios

argues Ross waived this issue because Ross did not raise it in the district court. “A

district court’s award of pre- and post-judgment interest is reviewed for abuse of

discretion.” Citicorp Real Est., Inc. v. Smith, 155 F.3d 1097, 1107 (9th Cir. 1998).

      2
         Pursuant to Section 82.010(1)(a) of Oregon’s Revised Statutes, Oregon
courts apply a prejudgment interest rate of nine percent, unless the parties have
agreed to another rate.
                                          6
       Generally, we will not consider issues raised for the first time on appeal. See

Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 515 (9th Cir. 1992). Although

there is “no ‘bright line rule’” for determining whether a party properly raised an

issue below, the general rule “is that the argument must be raised sufficiently for

the trial court to rule on it,” thus giving the district court the opportunity to

“reconsider its rulings and correct its errors.” Id. (quoting In re E.R. Fegert, Inc.,

887 F.2d 955, 957 (9th Cir. 1989)). Makarios requested prejudgment interest in its

counterclaims against Ross, and it continually urged the district court to use the

statutory rate of nine percent. Ross’s answer generally denied all requests and

allegations within Makarios’s prayer for relief, but Ross never challenged the nine-

percent interest rate until it filed an opposition to Makarios’s motion for attorney’s

fees. That filing came after the district court entered its post-trial final judgment

and after Ross filed its Notice of Appeal in this court.

       Ross had several opportunities to argue the rate of prejudgment interest in

the district court, but it did not afford the district court a sufficient opportunity to

rule on this issue. Therefore, we affirm the district court’s calculation of

prejudgment interest. See Van Asdale v. Int’l Game Tech., 763 F.3d 1089, 1093

(9th Cir. 2014) (declining to consider “whether prejudgment interest and

postjudgment interest awards in Sarbanes-Oxley cases must be based on the same

                                             7
interest rate” because, although the district court awarded prejudgment interest,

appellant “failed to raise this issue before the district court”).

       4. In its cross-appeal, Makarios first contends the district court erred by

denying recovery for Ross’s changes to the occupancy level of the basement

because Section 9.01 of the lease required the landlord’s written consent. This

argument fails because the district court ruled that the statute of limitations expired

on claims arising out of Section 9.01, and Makarios does not challenge that ruling.

       The district court ruled that Makarios impliedly consented to the changes to

the basement because the Calomiris family did not object to them until this

litigation ensued, despite objecting to other conditions in the building throughout

the term of the lease. There is no Oregon caselaw dealing with the specific

doctrine of implied consent that the district court applied. See Kirkland, 915 F.2d

at 1239 (explaining where there is no state-court precedent on point, a federal court

sitting in diversity “must predict how the highest state court would decide the issue

using . . . decisions from other jurisdictions, statutes, treatises, and restatements as

guidance”). The doctrine is well-supported by decisions from other jurisdictions,

see, e.g., Coleman v. Regions Bank, 216 S.W.3d 569, 576 (Ark. 2005); Lamonica

v. Bosenberg, 389 P.2d 216, 218 (N.M. 1964), and a treatise on landlord and tenant

law is in accord with the cases that the district court found persuasive, see 52A

                                             8
C.J.S. Landlord & Tenant § 963 (May 2022) (explaining that a tenant may be held

liable for alterations made without the landlord’s consent). We affirm the district

court’s implied consent ruling.

      5. Next, Makarios contends the district court erred by concluding that the

Oregon Supreme Court would apply the economic waste doctrine because Ross

intentionally breached the lease. The district court did not make a finding

regarding intent, and even if it had, no Oregon Supreme Court caselaw suggests

that Oregon courts consider a breaching party’s intent when deciding whether to

apply the economic waste doctrine. See, e.g., Beik v. Am. Plaza Co., 572 P.2d 305,

310–12 (Or. 1977) (declining to award diminution in value damages but making no

finding regarding whether the breach was intentional).

      6. Last, Makarios challenges the district court’s ruling that a reasonable and

prudent landlord would not spend $450,000 to install a second freight elevator,

$340,000 to repair the plumbing on the upper floors, and $274,420 to repair the air

conditioning on the third floor. Makarios argues Oregon’s version of the economic

waste doctrine does not impose a reasonableness burden on the landlord.

      The district court’s explanation for these line items of costs is subject to

more than one interpretation. On one hand, the district court unequivocally

expressed that it was not relying on the economic waste doctrine, but a footnote in

                                           9
its order suggests that it may have used the language of the economic waste

doctrine to fault Makarios for not proving that a reasonable and prudent landlord

would make certain repairs. On the other hand, the district court may have

intended to rely upon the general burden Makarios bore as counter-plaintiff, to

come forward with the costs of repair Ross owed pursuant to its end-of-lease

obligations. A landlord’s burden to recover end-of-lease damages includes

“showing the specific item of damage and the reasonable costs of repairing the

items of damage that are within the scope of the tenant’s covenant.” Milton R.

Friedman, 6 FRIEDMAN ON LEASES § 18:1 at 18–24 (June 2021). It is unclear

whether the district court relied on the economic waste doctrine or on Makarios’s

general burden as counter-plaintiff and landlord when it declined to award

damages for the freight elevator, plumbing on the upper floors, and air

conditioning on the third floor.

      We reverse and remand for the district court to clarify its ruling as to those

three line items, but we affirm in all other respects.

      AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

The parties shall bear their own costs.

                                           10