Commercial Real Estate Investment, L.C. v. Comcast of Utah II, Inc.

2012 UT 49, 285 P.3d 1193, 714 Utah Adv. Rep. 49, 2012 Utah LEXIS 113, 2012 WL 3285071
CourtUtah Supreme Court
DecidedAugust 10, 2012
DocketNo. 20090847
StatusPublished
Cited by32 cases

This text of 2012 UT 49 (Commercial Real Estate Investment, L.C. v. Comcast of Utah II, Inc.) is published on Counsel Stack Legal Research, covering Utah Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Commercial Real Estate Investment, L.C. v. Comcast of Utah II, Inc., 2012 UT 49, 285 P.3d 1193, 714 Utah Adv. Rep. 49, 2012 Utah LEXIS 113, 2012 WL 3285071 (Utah 2012).

Opinions

Justice DURHAM,

opinion of the Court:

INTRODUCTION

11 Comeast of Utah II, Inc. (Comcast) appeals from the district court's grant of partial summary judgment in favor of Commercial Real Estate Investment, L.C. (CRE). The district court awarded CRE approximately $1.7 million in liquidated damages, plus approximately $2 million in interest, based on Comcast's breach of contract. On [1195]*1195appeal, Comeast challenges the enforceability of the liquidated damages clause in its contract with CRE. The parties dispute what law governs review of the enforceability of liquidated damages clauses. We hold that liquidated damages clauses are not subject to heightened judicial serutiny, but instead are treated like any other contractual provision. We reject Comeast's argument that the liquidated damages clause in this contract is unconscionable and further conclude that CRE did not breach its duty to mitigate its damages. We accordingly affirm.

BACKGROUND

2 This recitation of facts is based on the district court's undisputed findings of fact for purposes of summary judgment. In 1995, TCI Cablevision of Utah (TCI) approached CRE about "developing a large commercial building where TCI could operate its northern Utah cable television business." TCI proposed to locate a suitable site and design a building to meet its specific needs. CRE would purchase the site and construct the building to TCI's specifications. TCI further proposed to enter into a long-term lease for the building.

T3 TCI identified a suitable site in River-dale, Utah. The site was located in a commercial/industrial subdivision that was largely undeveloped. CRE agreed with the proposed site. CRE anticipated that this new building might drive additional development in the subdivision, and consequently acquired another lot adjacent to the TCI lot. But "CRE did not express its intentions regarding adjacent development to TCI."

14 TCI's agent prepared the lease and delivered it to CRE. The lease as drafted by TCI's agent contained blanks for the rental amounts and the term of the lease. CRE approved the lease as presented: "The only additions [to the lease] were that the rental amounts and the term bad been added. In all other respects, the final lease contained the same provisions as TCI's draft lease."

[ 5 The lease contained the following provisions regarding the tenant's duties to continuously operate the building:

9.01 Tenant's Business Operations. Tenant covenants to operate all of the Building continuously during the entire term of this Lease with due diligence and efficiency unless prevented from doing so by causes beyond Tenant's control. Tenant shall keep on the Building at all times sufficient personnel to service the usual and ordinary demands and requirements of its customers. Tenant shall conduct its business on the Building during the regular customary days and hours for such type of business in the city or trade area in which the Building is located.
9.02 Liquidated Damages. As liquidated damages for the failure of Tenant to comply with the terms of this Article and in addition to all other remedies Landlord may have hereunder, Landlord shall have the right, at its option, to collect not only the minimum and additional rent herein provided, but added rent at the rate of one-thirtieth (1/30th) of the minimum monthly rent set forth in Article 4 for each and every day that Tenant shall fails [sic] to conduct its business as required herein.

The lease further specified that CRE had a duty to "exercise its reasonable best faith efforts to mitigate its damages, if any, arising from" a violation of the above provisions.

1 6 The parties signed the lease agreement in July 1995. TCI thereafter took possession and began operating its business from the building. On July 17, 2001, however, TCI ceased operations at the building and vacated the premises. In 2002, Comeast acquired TCI and succeeded to TCI's interest in the property and to its obligations under the terms of the lease. Sometime thereafter, "Comeast listed the building with a realtor in an effort to locate a replacement tenant." "CRE referred any inquiries regarding the property to Comeast's real estate agent, but CRE made no other efforts to find a substitute tenant." A substitute tenant took possession of the property on February 22, 2006.

T7 TCI (and subsequently Comeast) paid all rent due under the lease since July 1995, but have refused to pay any liquidated damages pursuant to Article 9 of the lease. Not counting interest, liquidated damages from [1196]*1196July 17, 2001, to February 22, 2006, total $1,711,990.66.

T8 In July 2004, CRE sued Comcast for breach of contract and attorney fees. Both parties filed motions for partial summary judgment as to the enforceability of the liquidated damages provision. The parties strongly disagreed as to which case law the district court should apply to determine the clause's validity. CRE argued that enforceability depended only on whether the clause is unconscionable. Comeast countered that enforceability should be determined under section 839 of the first Restatement of Contracts. Both parties supported their respective positions with extensive case law.

T9 The district court granted CRE's motion for partial summary judgment. The district court first held that our decision in Reliance Insurance Co. v. Utah Department of Transportation, 858 P.2d 1863 (Utah 1993), adopted the Restatement test for reviewing liquidated damages clauses. The two-part Restatement test requires determining (1) whether the amount of liquidated damages was a "reasonable forecast" of actual damages and (2) whether actual damages were "incapable or very difficult of accurate estimation." REestaATEMENT or, CoNTRACTS § 339 (1982). Applying the Restatement test, the district court held that the clause was enforceable.

{10 On the first part of the Restatement test, the district court noted that its "deciding factor" was that "the amount of damages varied depending on the length of time the building was unoccupied." Because the lease "specified damages proportional to the length of the breach," the district court reasoned, it could not "find that Comcast has met its burden of establishing that the liquidated damages were not a reasonable forecast of actual damages." "

1 11 On the second part, the district court noted that "the parties have offered [it] little guidance on this issue." The court determined that "the issue of unconscionability bears relevance" to this evaluation. As the court found none of the hallmarks of uncon-scionability to be present, it declined to "reallocate the assumption of the risk that was bargained for between the parties." The court concluded that "Comeast cannot establish that either element of [the Restatement test] is not met, nor can Comeast prove that the agreement is unconscionable," and thus granted CRE's motion for partial summary judgment.

{ 12 The district court also rejected Com-cast's argument that CRE had failed to mitigate its damages. The district court first noted that it was "undisputed that CRE did nothing to assist in finding a new tenant other than refer inquiries to Comcast's agent." The court then refused to "speculate as to what CRE could have or should have done to secure another tenant or whether any other tenant would satisfy the requirement of occupancy."

113 Comcast timely appealed the district court's order.

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Bluebook (online)
2012 UT 49, 285 P.3d 1193, 714 Utah Adv. Rep. 49, 2012 Utah LEXIS 113, 2012 WL 3285071, Counsel Stack Legal Research, https://law.counselstack.com/opinion/commercial-real-estate-investment-lc-v-comcast-of-utah-ii-inc-utah-2012.