391 P.3d 892
Or. Ct. App.2017Background
- Heathman Hotel Portland, LLC (plaintiff) and McCormick & Schmick Restaurant Corp. (defendant) executed a restaurant lease (2000) with an initial term to Sept. 30, 2010 and two 10-year renewal options conditioned on not being in default and meeting minimum average gross sales ($6M for first option; $7.5M for second), measured over the two Lease Years immediately preceding notice.
- In an Amendment effective Sept. 30, 2009, the parties recited that Tenant had exercised its option and agreed the extension would be five years (not ten), amended the term to expire Sept. 30, 2015, and stated Tenant would have one remaining five-year option "on the terms and conditions set forth in Section 2.2 (except for the number of Options and length of the Option Term)."
- Dispute arose whether (1) the Amendment left Tenant operating under the first option or otherwise, and (2) whether a minimum gross-sales condition (and if so which amount and which years) still applied to the remaining option.
- Plaintiff sought declaratory judgment (filed Apr. 2014) that defendant had no right to exercise the second renewal option and the lease would terminate Sept. 30, 2015; deadline to give notice if eligible was Sept. 30, 2014.
- Trial court granted summary judgment for plaintiff, holding the Amendment unambiguously showed Tenant had exercised the first option, one five-year option remained, and the $7.5M two-Lease-Year minimum applied — which defendant did not meet; trial court awarded plaintiff attorney fees and costs ($50,395.28).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Amendment unambiguously shows Tenant had exercised the first option and was operating under that option term | The Amendment’s recitals and amended Sections 2.1–2.2 unambiguously state Tenant exercised an option and the term was extended to Sept. 30, 2015, leaving one five-year option remaining | The Amendment is ambiguous; Tenant exercised a 10-year option originally or the parties separately agreed a 5-year extension, so it’s unclear which option (if any) governed after amendment | Held: Unambiguous — the Amendment shows Tenant exercised the first option and the parties were operating under the first option term |
| Whether the remaining option retained the original Section 2.2 conditions (including minimum gross-sales) | The Amendment expressly incorporates the original Section 2.2 terms except for number and length of options, so the gross-sales conditions remain (second-option threshold $7.5M) | The Amendment silently eliminated or changed the gross-sales minimums (or at least left ambiguity), particularly given Tenant agreed to pay for major improvements | Held: Unambiguous — the Amendment retained the original Section 2.2 conditions except the two stated changes; the $7.5M two-Lease-Year requirement applied |
| How to interpret "two Lease Years immediately preceding the delivery of its notice" for measuring gross sales | Lease-year definition (Oct.1–Sept.30) requires counting the two full Lease Years immediately preceding when notice is given, so the relevant years were Lease Years ending Sept. 30, 2012 and 2013 | The phrase could include the Lease Year in which notice is given (creating ambiguity and different accounting windows) | Held: Unambiguous — means the two full Lease Years immediately preceding the notice period; Tenant could not meet the $7.5M requirement for the Lease Years ending 2012 and 2013 |
| Whether attorney fees awarded to plaintiff were appropriate and reasonable | Prevailing-party attorney-fee clause in the lease and Amendment entitled plaintiff to reasonable fees; trial court carefully reviewed billing and reduced certain entries | Defendant contends fees were excessive and/or unnecessary because litigation could have been avoided or complaint overbroad | Held: Fee award affirmed — trial court did not abuse its discretion in awarding reasonable fees (after excluding some billing for fee-petition work) |
Key Cases Cited
- Milne v. Milne Constr. Co., 207 Or. App. 382 (contractual ambiguity is a question of law; summary judgment appropriate if terms unambiguous)
- Yogman v. Parrott, 325 Or. 358 (contract ambiguity test: susceptible to more than one plausible interpretation)
- Village at North Pointe Condo. Assn. v. Bloedel Constr., 278 Or. App. 354 (standards for appellate review of attorney-fee reasonableness)
- Morton & Assocs., LLC v. McCain Foods USA, Inc., 226 Or. App. 532 (extrinsic circumstances considered only if contract language supports competing constructions)