First National Mortgage Co. v. Federal Realty Investment Trust
631 F.3d 1058
| 9th Cir. | 2011Background
- Federal Realty sought to acquire the San Jose Property and engaged in ground-lease negotiations with First National; August 25, 2000 Final Proposal signed by Dryan for First National and Guttman for Federal Realty.
- Final Proposal: $100,000/month rent with 3% annual increases, 10-year put option for First National, 10-year call option for Federal Realty, and reimbursements including $75,000 to buy out the current lease holder.
- Terms stated the Final Proposal was accepted subject to a formal agreement; extensive negotiations followed but no binding formal agreement was reached.
- First National vacated a current tenant and sought rent loss recovery; May 11, 2001 Federal Realty declined reimbursement, signaling no binding agreement.
- District court found the Final Proposal could be binding and allowed extrinsic evidence on lease duration; jury found the Final Proposal binding and the put/call created a ten-year lease; damages awarded about $15.9 million; expert-witness fee issues were decided under Aceves.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the Final Proposal binding despite 'subject to approval of formal agreement'? | Final Proposal was an enforceable contract supporting terms now. | Final Proposal was non-binding until formal agreement; clause reserved modification. | Yes; Final Proposal binding as written and not a mere nonbinding proposal. |
| Does a ten-year lease term arise from the put/call provisions? | Ten-year duration implied by combined put/call terms. | Lease duration not expressly stated; extrinsic evidence acceptable to resolve ambiguity. | Yes; duration reasonably susceptible to implied ten-year term; extrinsic evidence admissible. |
| Are lost rent and put option damages recoverable and properly measured? | Both lost rent and put option value recoverable; valuation at breach date. | Recoveries may be duplicative or mis-timed if misinterpreted. | Yes; recoveries for both lost rent and put option; valued as of the breach date. |
| Should expert-witness fees be recovered under § 998(d) or federal law? | California § 998(d) allows reasonable expert fees; federal law should govern in federal court. | Only federal § 1821(b) rates apply in federal court; Aceves controls. | Federal law governs expert-witness fee recovery; § 998(d) not applicable. |
Key Cases Cited
- Smissaert v. Chiodo, 163 Cal. App. 2d 827 (Cal. App. 2d 1958) (writing need not be complete to bind when intention evident)
- Gavina v. Smith, 25 Cal.2d 501 (Cal. 1944) (when essential terms implied, binding lease may arise)
- Pac. Improvement Co. v. Jones, 164 Cal. 260 (Cal. 1912) (binding lease even with future formal instrument)
- Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33 (Cal. 1968) (parol evidence admissible to explain ambiguous terms)
- Aceves v. Allstate Ins. Co., 68 F.3d 1160 (9th Cir. 1995) (federal law controls expert-witness fee recovery in federal courts)