In re Print Harmony, LLC
In re Print Harmony, LLC
Opinion of the Court
The Debtor leased commercial space from Rubin Automobile Boulevard, LLC under a triple net lease. Rubin filed a proof of claim in this case seeking $676,713.05 for amounts allegedly due under the lease, including unpaid prepetition and postpetition rent, repairs to the leased premises, rejection damages for future rent, and breach of a purchase obligation. According to Rubin, the Debtor used a flood in a small portion of the premises as a pretext to stop paying rent for the entire premises, thwarted Rubin from repairing the flood damage, and then moved out, leaving the premises trashed.
But the evidence at trial on the Debtor’s objection to the Landlord’s proof of claim told a slightly different story. By seeking to use the casualty event as an opportunity to upgrade the building’s electrical system, it was Rubin that prevented the flood damage from being repaired. And while there was evidence the property had been damaged, Rubin was unable to prove whether the damage had been done by the Debtor or a predecessor tenant. Even if it had proven that the Debtor caused the damage, Rubin could not prove the repairs it was proposing were necessary to restore the property to its preexisting condition— or that they would ever be done at all. As for the purchase obligation, all of the evidence at trial showed that Rubin waived any right to require the Debtor to buy the leased premises. In the end, Rubin was only able to prove it was entitled to a $123,169.21 allowed claim for prepetition rent and a $6,041.40 administrative claim for postpetition rent that had been abated during the case.
Findings of Fact
The Parties
The Debtor is a commercial wholesale internet printer.
The Lease
On July 25, 2011, the Debtor entered into a five-year lease with the Landlord for 38,700 square feet of office and warehouse space that PressEx had been leasing.
If the Premises are damaged, either partially or totally, the Rent for the period required for the repair or restoration of damage shall be paid up to the time of the casualty and thenceforth shall be abated, in proportion to the degree to which [Debtor’s] use of the Premises is impaired, up to, but not in excess of, the proceeds received by Landlord under Landlord’s rent loss coverage.8
In the event the leased premises were partially or totally damaged, the lease also obligated the Landlord to make the proceeds from its casualty insurance policy available to the Debtor so the Debtor could restore the premises to their existing condition.
The Flood
On November 5, 2014, a plumbing issue damaged the Debtor’s interior office space at the leased premises.
The cost of the initial remediation work was $12,127.35.
The Dispute over the Scope of Repairs
And this is where the first dispute began: the Landlord had insurance coverage to fix the remaining damage too, but the parties could not agree on the scope of the repair work. The Landlord obtained an estimate from Synergy, which did the
But the Debtor objected to the Landlord’s proposed scope of repairs. The Debt- or believed the code upgrades were unnecessary. And it was concerned about what it perceived as unnecessary repairs, particularly the electrical upgrades, because those repairs potentially could have shut down the Debtor’s business for a substantial amount-of time.
Suffice it to say, despite months of “negotiating,” the parties were never able to agree on the scope of repairs.
The Bankruptcy Case
The Landlord, however, responded by suing to evict the Debtor for unpaid rent.
Two weeks after this case was filed, the Landlord moved for payment of $14,328.87 in stub rent for July.
The Move-Out
By the end of August 2015, however, the Debtor had vacated the premises. According to the Debtor, it wanted to hire more employees and grow its business, but it did not have enough room for its employees because the flood damage had not been— and, in the Debtor’s view, was not going to be — fixed.
This is where the second dispute began: When it decided to move out, the Debtor says it had its employees move out the equipment and then clean the warehouse space.
The Landlord’s Claim
The Landlord then filed a $643,059.50 unsecured claim in this case.
Conclusions of Law
This Court must determine the amount of the Landlord’s claim. “When a proof of claim contains all the information required under Rule 3001, it ‘constitutes prima facie evidence of the validity and
Here, the Landlord bears the burden of proof on his proof of claim because it would bear that burden outside bankruptcy. The Landlord’s claims are largely for breach of the parties’ lease agreement. And under Florida law, a party suing on a contract bears the burden of proof,
The Landlord largely proved its prepetition claim
The Landlord seeks $128,087.78 in prepetition rent.
As a threshold matter, the Court agrees with the Debtor that the Landlord breached the parties’ lease. It is implicit in the lease that the Landlord was obligated to insure the leased premises.
This decision, in turn, hinges on whether the upgrades the Landlord was seeking were required by the local building code.
The Landlord’s breach, however, was not so material that it excused the Debt- or’s performance — i.e., its obligation to pay rent — as a whole. The Landlord contends that a reasonable interpretation of a contract, even if wrong, cannot constitute a material breach. But the Court need not go that far because by the Debtor’s own admission, the flood only affected its office space, which only comprised — at most— 1,485.69 square feet (or 3.84% of the premises).
But while the Landlord’s breach did not excuse the Debtor’s performance, the Debtor is entitled to abate a portion of its rent.
At trial, the Landlord put on competent evidence that it was owed $128,087.78. The Debtor contends that amount (1) includes $15,865.32 in improper water and sewer charges, and (2) fails to credit the Debtor for $25,600.74. The Court can see a reference to a $25,600.74 discrepancy in the Landlord’s accounting.
The Landlord failed to prove its damages for repairs and clean-up.
The Landlord seeks $172,898.55 for the cost of repairing and cleaning up the premises after the Debtor moved out.
There is no question the Debtor was responsible for repairing and maintaining the premises. The lease imposed on the Debtor the obligation to keep the foundation, outer walls, roof, and buried conduits in good repair.
For starters, the Landlord failed to prove that the Debtor was responsible for the damage to the premises. The Landlord offered into evidence a number of photos showing the substantial damage it says the Debtor caused.
But neither Carter nor Rubin could testify with any certainty whether the damage ivas done by the Debtor or PressEx, which occupied the premises ■ before the Debtor. Carter conceded he did not know when PressEx’s lease ended and when the Debtor’s started.
Moreover, the Landlord failed to prove that the $172,898.55 in repairs was required to maintain the premises in or restore them to its original condition. The Landlord’s evidence on this point largely consisted of a composite exhibit that contained estimates from Total Air Conditioning & Heating ($12,370), West Coast Roofing & Contracting ($49,595), SWS Environmental Services ($2,132.55), Overhead Door ($4,566), and Commercial Interior Solutions ($98,795)
But Rubin, was unable to testify about any of the specifics when it came to the repairs or how they were necessary to restore the premises to the condition they
Finally, very little of the repair work has been done — and the rest of it may never be done. The Landlord did pay $2,100 for SWS Environmental Services to remove liquids from the premises.
In short, the Landlord cannot prove which damages, if any, the Debtor caused to the premises; which repairs are necessary to bring the premises back to the condition they were in at the time the lease was entered into; or which repairs, if any, will ever be made. For those reasons, the Landlord failed to meet the burden of proof on its repair claim.
The Landlord failed to prove entitlement to rejection damages
The Landlord seeks $102,506.52 for rejection damages. There is no question
The Landlord’s rejection damages claim, however, overlooks its prior breach of the lease, which is discussed above. In considering prepetition damages for unpaid rent, it is one thing to say that the Court can simply abate the rent for the unusable portion of the premises. After all, the Debtor could use part of the premises during that time. It is quite another thing to say that the Landlord can refuse to repair the premises and force the Debtor to remain in a space that is no longer what they bargained for because the Debtor will otherwise be obligated for more than $100,000 in future rent if it rejects the lease.
The Debtor put on compelling evidence at trial that it was forced to reject the lease because the Landlord breached its obligation to make the insurance proceeds available. Specifically, Gabay testified that the Debtor wanted to hire more employees and grow its business, but it did not have enough room for its employees because the flood damage had not been fixed.
Rubin failed to prove a breach of the alleged purchase obligation
The Landlord seeks $247,793' in damages for the Debtor’s alleged breach of a purchase obligation. An addendum to the parties’ lease provided that the Debtor would buy the leased premises for $1.4 million at the end of the third lease year.
Waiver, under Florida law, is the “voluntary and intentional relinquishment of a known right.”
For one thing, the Landlord never made any demand that the Debtor actually purchase the premises.
The Landlord did not respond by telling the Debtor it was already obligated to buy the building. Instead, the Landlord attempted to negotiate a sale as if no purchase obligation existed at the time. The Landlord even agreed to a sale price that was $350,000 less than provided for in the lease addendum.
The Landlord largely failed to prove its administrative expense claim
The Landlord’s administrative claim has three components: (1) $2,132.55 for the removal of environmentally sensitive materials; (2) $17, 012 worth of clean up; and (3) $6,282.65 in rent that was abated while this case was pending. The Court rejects the first two components of damages for the same reasons it rejected the Landlord’s claim for repairs and cleanup costs, above. But the Court does find the Landlord is entitled to the postpetition rent as an administrative expense — albeit reduced by the 3.84% abatement for flood damage. So the Landlord is entitled to a $6,041.40 administrative claim for postpetition rent.
Conclusion
At bottom, this case turned on the credibility of the parties’ witnesses and the weight that should be given to the parties’ evidence. Were the repairs the Landlord was proposing really required by the code? Did the Debtor or PressEx cause the damage to the premises? Were the repairs necessary? In the end, the Court largely found that, with the exception of the pre-petition and postpetition rent due under the lease, the Landlord largely failed to carry its burden on its claims. Accordingly, it is
ORDERED:
1. Debtor’s objection to Landlord’s proof of claim
2. Landlord shall have a $123,169.21 allowed claim for prepetition rent and a $6,041.40 administrative claim for postpetition rent that had been abated during the case.
3. Landlord’s motion to estimate its claim
. Trial. Tr. at p. 187, ll. 12-20.
. Id. at p. 187, ll. 18-20; p. 210, ll. 5-8.
. Id. at p. 187, ll. 14-17.
. Landlord’s Ex. 3; Trial Tr. p. 56, ll. 4-12; p. 56, l. 25-p. 57, l. 9; p. 57, l. 20-p. 58, l. 11; p. 188, l. 13-p. 189, 1. 2.
. Landlord’s Ex. 3 atp. 2, ¶ 1.
. Id. at p. 2, ¶ 2(a) & p. 15. The lease is confusing in this respect. The Landlord is
. Id. atp. 15, Addendum.
. Id. at p. 9, ¶ 18(a).
. Id. at p. 9, ¶ 18(b).
. Trial Tr. p. 41, l. 21-p. 42, l. 4; p. 69, ll. 7-15.
. Id. at p. 203, l. 16-p. 204, l. 3.
. Id. at p. 157, ll. 14-20.
. Id. at p. 203, l. 19-p. 204, l. 3.
. Id. at p. 204, ll. 4-15.
. Id. at p. 204, l. 16-p. 206, l. 1.
. Debtor's Ex. 3.
. Trial Tr. at p. 207, ll. 9-22.
. Landlord’s Ex. 13.
. Id.; Debtor's Ex. 2,
. Deptor's Ex. 9; Trial Tr. p. 209, l. 1-p. 210, l. 3; p. 211, l. 7-p. 212, l. 5; p. 219, ll. 8-12.
. Trial Tr. p. 210, ll. 3-8.
. Debtor’s Ex. 9.
. Trial Tr. p. 209, l. 24-p. 210, l. 2.
. Debtor's Ex. 5.
. Debtor’s Exs. 7, 9 & 14.
.Trial Tr. at p. 74, ll. 4-11; p. 94, ll. 8-17; p. 134, ll. 11-15.
. Id. at p. 69, ll. 22-24; p. 190, ll. 4-13.
. Id. at p. 217, l. 20-p. 218, l. 2.
. Id. at p. 218, ll. 3-7; Landlord’s Ex. 2.
. Trial Tr. at p. 218, ll. 8-14,
. Id.
. Doc. 18.
. Doc.43.
. Trial Tr. at p. 189, l. 15-p. 190, l. 13.
. Id. at p. 189, l. 24-p. 190, l. 3.
. Doc. No. 54.
. Trial Tr. at p. 191, ll. 2-8.
. Id. at p. 191, ll. 9-20.
. Id. at 66, l. 6-p. 67, l. 17.
. Landlord’s Ex. 20; Trial Tr. at p. 20, l. 25-p. 21, l. 3; p. 67, ll. 1-16.
. Proof of Claim #14.
. Landlord's Ex. 4; Trial Tr. p. 58, l, 15-p. 60, l. 10.
. Landlord's Ex. 7.
. Landlord's Ex. 8.
. Doc. No. 99. Rubin’s administrative claim was originally for $53,381.55. Rubin later voluntarily reduced its administrative expense claim.
. Landlord’s Ex. 5; Trial Tr. p. 60, ll. 14-22.
. Rubin also moved to estimate its claim for confirmation. Doc, No. 81. But that motion is moot since the Court has tried and is ruling on Rubin’s actual proof of claim.
. In re Walston, 606 Fed.Appx. 543, 546 (11th Cir. 2015) (quoting Fed. R. Bankr. P. 300(f)).
. Id. (citing Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 701 (5th Cir. 1977).
. Id. (citing Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15, 20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000)).
. See Knowles v. C.I.T. Corp., 346 So.2d 1042, 1042 (Fla. 1st DCA 1977).
. Custer Med. Ctr. v. United Auto. Ins. Co., 62 So.3d 1086, 1096-97 (Fla. 2010).
. Landlord’s Ex. 4.
. Id.
. Id.
. Landlord’s Ex. 3 at p. 3, ¶ 6(b); Trial Tr. at p. 101, 1. 16-p. 102, 1. 4. The insurance, though, is paid by the Debtor as part of the CAM charges. Trial Tr. at p. 102, 11. 5-12.
. Landlord’s Ex. 3 at p. 9, ¶ 18(b).
. Trial Tr. at p. 144, l. 10-p. 166, l. 19; p. 172, l. 10-p. 186, l. 13.
. Landlord’s Ex. 12.
. Landlord's Ex. 3 at p. 9, ¶ 18(a).
. Trial Tr. at p. 189,11. 7-14.
. Landlord’s Ex. 4.
. Landlord's Ex. 7.
. Id.
. Landlord's Ex. 3, at p. 6, ¶ 10(a),
. Id.
. Id.
. Landlord's Ex. 20,
. Trial Tr. at p. 16, l. 13-p, 17, l. 4.
. Id. at p. 66, l. 15-p. 67, l.8.
. Id. at p. 67, ll. 9-11.
. Id. at p. 48, l. 24-p. 49, l 1.
. Id. at p. 49, ll. 5-9.
. Id. at 119, ll. 9-15.
. Id. at p. 49, ll. 13-16; p. 118, l. 25-p. 119, l. 7; p. 122, ll. 3-11; p. 124, ll. 6-10.
. Landlord’s Ex. 7.
. Trial Tr. at p. 62, l. 19-p. 66, l. 5.
. Id. at p. 115, l. 17-p. 116, ll. 13.
. Id. at p. 116, l. 17-p. 117, l. 23.
. Id. at p. 121, ll. 8-16.
. Landlord's Ex. 13; Trial Tr. p. 25, l. 6-p. 26, l. 6.
. Trial Tr. at p. 122, ll. 3-11.
. Id. at p. 64, ll. 18-24.
. Id. at p. 121, l. 22-p. 122, l. 2.
. Id. at p. 117, 124-p. 118, l. 5.
. Id. at p. 118, ll. 12-15.
. Id. at p. 126, ll. 18-23.
. Id. at p. 118, ll. 16-22.
. Id. at p. 126, l. 24-p. 127 l. 5.
. id. at p. 118 at ll. 23-24.
. Doc. Nos. 54 & 74,
. 11 U.S.C. § 365(g)(1).
. Trial Tr. at p. 189, l. 15-p. 190, l. 13.
. Id. at p. 189, l. 24-p. 190, l. 3.
. Landlord’s Ex. 3, at p. 15, Lease Addendum.
. Landlord’s Ex. 13.
. Rubin’s six buildings totaled 211,600 square feet. Of that, the Debtor’s building was 38,700 square feet — or 18.289% of the total ■ square footage. So Rubin allocated 18.289% of the proposed purchase price — or $1,152,-207 — to the Debtor's building.
. Raymond James Fin. Servs., Inc. v. Saldukas, 896 So.2d 707, 711 (Fla. 2005).
. Bueno v. Workman, 20 So.3d 993, 998 (Fla. 4th DCA 2009).
. Raymond James Fin. Servs., 896 So.2d at 711.
. Trial Tr. at p. 214, ll. 2-7.
. Id. at p. 213, l. 3-p. 214, ll. 11; p. 215, ll. 4-13.
. Debtor’s Ex. 12; Trial Tr. at p. 111, 1. 9-p. 112, l. 14.
. Doc. No. 83.
. Doc. No. 99.
. Doc. No. 81.
Reference
- Full Case Name
- IN RE: PRINT HARMONY, LLC, Debtor
- Status
- Published