Case Information
*1 BEFORE: MERRITT, MOORE, and McKEAGUE, Circuit Judges.
MERRITT, Circuit Judge. This аppeal and cross-appeal raise multiple damages issues in a diversity contract dispute stemming from the defective condition in which two hundred railcars were returned from Lafarge to Andersons, Inc., at the end of a ten-year lease. The parties raise six [1]
separate issues on the appeal and cross-appeal. Following the district court’s award of $3.1 million in damages to Andersons, Lafarge argues on appeal that the court erred in determining that Andersons has standing аs the real party in interest, that Andersons satisfied its burden of proof to establish damages, and that Andersons was entitled to six months of holdover rent. Andersons cross- appeals, contending that the court erred in failing to award prejudgment interest, finding that Andersons failed to mitigate its damages, and declining to award attorneys’ fees. We AFFIRM the judgment of the district court in all respects.
We will first recount the relevant facts and the proceedings below and then take up the six issues presented on appeal.
Lafarge returned the two hundred open-top hopper railcars to Andersons in October 2008. The cars were used over the 10-year period to haul limestone aggregate. Although there are no photographs of the cars in 1998, evidence shows that Andersons had refurbished them shortly before the lease began and left them in “very good condition.” Item 10 of the lease provided at Lafarge “shall, at its sole cost and expense, maintain the Cars in ‘serviceable’ condition, free of broken, damaged or missing parts, suitable for the сommercial use originally intended, and meeting applicable standards as prescribed by the AAR Interchange Rules and the FRA rules and regulations.” Item 7 provided that, at the termination of the lease, the parties “shall jointly inspect the Cars to determine if each Car is clean and free of commodities or residue” and complies with the aforementioned rules. Andersons had the right to holdover rent, among other things, if the cars were not delivered in the specified condition within thirty days of the leasе’s expiration.
Relevant to the standing issue, after Andersons initiated the lease agreement, it entered into financing deals with The Vaughn Group and National City Leasing Corp. for one hundred of the leased cars each. These transactions included options for Andersons to re-purchase the cars after ten years. Andersons could recoup the money it used to purchase the cars while the financing institutions profited by collecting the lease payments. The bill of sale for the Vaughn deal conveyed “all rights, title, and interest in and to the [cars] and all appurtenant rights relating thereto,” whereas the sale to National City expressly conveyed both the cars and the “right, title and interest in the Lease.”
Shortly before the end of the lease period in 2008, Andersons exercised its purchase option in both financing agreements. U.S. Bancorp—which had assumed Vaughn’s interest—reconveyed the cars to Andersons through an instrument using language identical to the original transaction. The bill of sale frоm the National City re-conveyance, however, did not expressly mention the lease (unlike the first sale document ten years earlier).
In late October 2008, Lafarge returned the cars to Andersons and the parties attempted to complete the joint inspection contemplated in the lease. The circumstances are not entirely clear from the record, but it appears that the Lafarge representatives acknowledged some deterioration in the cars but walked out in protest when the Andersons representative, Rick Gieryng, stated that the cars would need substantial repairs. After evaluating the cars by himself, Gieryng estimated the cost [2]
to repair the cars at $8,500,076. The next evaluation came in November 2008 from Christian Barios, retained by Lafarge, who estimated the total repair cost to be $1,912,908. In August 2009, a third [3] appraiser, Jerry Charaska, provided another inspection for Andersons and concluded that the repair cost would range between $15,000 to $35,000 per сar, for a total average of $5,000,000. Finally, Andrew Spurlock estimated the damages for Lafarge in 2010 at $646,118.
Meanwhile, Andersons initiated this action by bringing a complaint against Lafarge in
January 2009. The district court conducted a two-day bench trial in October 2010. In a June 2011
order, the court ruled in favor of Andersons and issued a judgment for $2,924,455.
Andersons, Inc.
v. LaFarge N. Am., Inc.
, No. 3:09 CV 222,
“In diversity cases such as this, we apply state law in accordance with the controlling
decisions of the state supreme court.”
Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc.
, 249 F.3d
450, 454 (6th Cir. 2001). “If the state supreme court has not yet addressed the issue presented, we
must predict how the court would rule by looking to all the available data.”
Id.
“In an appeal from
a judgment entered after a bench trial, we review the district court’s findings of fact for clear error
and its conclusions of law de novo.”
T. Marzetti Co. v. Roskam Baking Co.
,
I. Lafarge’s Issues
A. Real Party in Interest
Lafarge first contends that Andersons lacks standing to bring this suit because it is not the
real party in interest to the lease.
See
Fed. R. Civ. P. 17(a)(1)(“An action must be prosecuted in the
name of the real party in interest.”);
Shealy v. Campbell
,
There is no dispute that Andersons successfully conveyed its interest in the lease to the financing institutions at the beginning of the lease term. Given that both the 1998 and 2008 Vaughn/U.S. Bancorp transactions used identical language to refer to the property being conveyed, we hold that an interest in the lease was first conveyed and then reconveyed. The transfer to National City expressly referred to the lease whereas the transfer from National City did not. However, the bill of sale did convey “all of [National City’s] rights, title and interest in and to” the cars and specified that the cars were sold “AS-IS-WHERE-IS without any covenant or warrant, express or implied, of any nature whatsoever.” Further, a letter from National City to the Surface Transportation Board pursuant to the Interstate Commerce Act provided “formal notification” that [4]
the cars had been “paid in full” and that Nationаl City “hereby releases all of its right, title and interest” in the cars. Despite the absence of an express reference to the lease, we conclude that these documents served to reconvey the interest in the lease back to Andersons. Cf. Restatement (Third) of Property (Servitudes) § 5.1 (2000) (“An appurtenant benefit or burden transferable . . . passes automatically with the property interest to which it is appurtenant.”). [5]
The lease also reverted back to Andersons under a theory of equitable assignment. Equitable
assignment is a form of conveyance recognized by Ohio law which is evidenced by “any words or
transactions which show an intention on one side to assign and an intention on the other to receive,
if there is a valuable consideration.”
Langhals v. Holt Roofing Co.
,
B. Damages
Even though Lafarge presented evidеnce at trial that it was responsible under the contract for as much as $646,118 in damages, Lafarge inconsistently argues on appeal that the court should not have awarded “any” damages because (1) Andersons could not establish the amount of repair damages with the requisite degree of certainty and (2) the holdover rent provision is an unenforceable penalty which should be barred by Andersons’s failure to mitigate. Andersons cross- [6] appealed the court’s holdover rent determination, arguing that the court erred in finding that Andersons failed to mitigate those damages after sixth months.
1. Repair Damages.— The Andersons’s expert credited by the court, Jerry Charaska, testified that an accurate determination of the cost to fix a particular car would require sand blasting to remove the corrosion and determine the remaining amount of metal thickness. In the absence of sand blasting, Charaska explained that he could provide an opinion with a reasonable degree of certainty only as to the average cost to fix each car but conceded on cross-examination that he could not provide an estimate for each car individually.
According to Lafarge, Charaska’s uncertainty bars relief because Ohio contract law requires
proof of damages with a reasonable degree of certainty. However, as Andersons correctly observes,
Ohio law provides that “once the existence of damages is shown, mere uncertainty as to amount will
not prеclude recovery.”
Collins v. Mullinax E., Inc.
,
2. Holdover Rent . — Lafarge claims that Andersons is not entitled to any holdover rent. Item 7(d) of the lease provided that any car not delivered in the appropriate condition within thirty days of the expiration of the lease period would be subject to holdover rentals at a rate of one and one-half times the pro-rata daily rate of the rental. The court found that Andersons “reasonably waited six months while attempting to work out its dispute with” Lafarge; it awarded holdover rent for that period. But after six months, the court found, “there was no reasonable expectation [Lafarge] would accede to [Andersons’s] payment demand,” and so Andersons had a duty to mitigate by either starting repairs or selling the cars for scrap parts. Thus, the court concluded that Andersons’s inaction barred it from recovering holdover rent indefinitely after a reasonable time to resolve the dispute had passed.
As a threshold matter, Lafarge contends that the holdover provision is an unenforceable
liquidated damages clause. The Ohio Supreme Court has established as an exception to the freedom
to contract that stipulated damagеs which constitute a “penalty” are unenforceable for public policy
reasons.
Lake Ridge Acad. v. Carney
,
Lafarge explains that the holdover award is contrary to public policy because Andersons had possession of the cars and therefore had unilateral control over how and when the cars may become usable. Thus, Andersons could “apply the holdover rent provision seemingly indefinitely.” Applied indefinitely, Lafarge is correct that holdover rent would have no bearing on Andersons’s actual damages. However, the court only awarded Andersons holdover rent for the six month period following the end of the lease in which Andersons reasonably could have expected to reach a settlement. During this time, Andersons was without use of its property and had to expend resources to seek Lafarge’s compliance with the contract. The damages were hard to quantify and were the types of losses the parties contemplated when assenting to the holdover provision. Such damages do not rise to the level of a penalty.
On the question of whether Lafarge is correct in claiming that Andersons did not properly
mitigate damages, under Ohio contraсt law, “mitigation is a fundamental tenet of a damage
calculus.”
Frenchtown Square P’ship v. Lemstone, Inc.
,
II. Andersons’s Issues
Andersons cross-appeals on three matters, contending that the district court erred in finding that Andersons failed to mitigate its damages, and that it should have been awarded prejudgment interest and attorneys fees.
A. Mitigation
Andersons argues that the court erred in finding that it failed to mitigate after the initial six
months. According to Andersons, it should not have been required to scrap the cars because their
long-term value was greater if lеft whole or to fix the cars because there was no market for them
during the time in question. Although we agree with Andersons on both points under these
circumstances, we nonetheless conclude that Andersons is not entitled to additional holdover rent.
Under Ohio law, an enhanced rent provision stemming from holdover is construed as liquidated
damages, which may only be upheld “as long as it bears some relation” to the owner’s actual
damages.
Brunswick Ltd. P’ship v. Feudo
,
B. Prejudgment Interest
Andersons argues that the court erred in declining to award prejudgment interest. This is a
debatable issue. Under Ohio law, “when money becomes due and payable upon . . . all judgments
. . . for the payment of money arising out of . . . a contract . . . , the creditor is entitled to interest” at
a statutory rate or as otherwise provided in the contract. Ohio Rev. Code Ann. § 1343.03(A). The
Ohio law is somewhat unclear as to the interpretation of this statutory language. “[T]he trial judge
has no discretion not to grant any interest award” if a plaintiff obtains a favorable judgment
, Lincoln
Elec. Co. v. St. Paul Fire & Marine Ins. Co.
,
The district court concluded that, in light of the uncertainties concerning damages, Andersons
was not entitled to prejudgment interest on repair costs because that money was not “due and
payable” until the court ordered it. Item 30(g) of the lease provided that interest “shall accrue” for
payments “not made
when due hereunder
from the date thereof.” (Emphasis added). According to
Andersons, payment was due when the claim accrued: the time of the return of the cars. However,
the lease did not specify when repair costs from Lafarge to Andersons were “due.” Rather, the lease
required Lafarge to fix the cars itself “promptly” and within a “reasonable time” of return. In the
absence of a more definitive point for repair costs to become “due,” we cannot say that the district
court abused its discretion in setting the judgment date as the starting time.
See Hutchinson v. State
Auto Ins. Co.
, No. 20636,
By contrast, holdover rent had a more definitive “due date” under the lease because it was specified to be “paid on demand” starting thirty days after the lease expiration. However, the district court concluded that Andersons is not entitled to prejudgment interest on holdover rent because Item 30(g) of the lease only allows for interest for “any payment, other than rent .” (Emphasis added by district court). We also note on this issue that there is a discreрancy in the record. The district court’s order accurately quotes Exhibit A of the complaint, which is a copy of the lease signed in April 1998, that excludes interest on rent. [R. 63, Amended Judgment Entry, at 5, PageID 1103; R.1-1, Complaint Exhibit A, at 1, PageID 5]. Yet Andersons’s briefs quote the same provision as “any payment, including rent.” [Second Br. 35; Fourth Br. 4-5]. Without argument or demonstration from either party as to which version of the lease controls—even though the “other than rent” provision was emphasized in bold font in the district court’s opinion and served as the only basis for denying interest on holdover rent—we cannot conclude that the court erred.
C. Attorneys’ Fees
Finally, Andersons asserts that the court erred in not awarding it attorneys’ fees. A trial
court’s determination regarding attorneys’ fees is reviewed for abuse of discretion.
Furr v. State
Farm Mut. Auto. Ins. Co.
,
Lessee shall pay Lessor’s costs and expenses incurred by reason of Lessee’s breach or default which shall include, without limitation, . . . collecting rents and professional fees and expenses with respect to or incurred by reason оf the breach or default, including legal fees and expenses for advice and legal services in any actions or proceedings which Lessor may commence or in which Lessor may appear or participate to exercise or enforce any rights or remedies or to protect or preserve any rights or interests, and in all reviews of and appeals from any such actions or proceedings.
Under Ohio law, a contractual right to attorneys’ fees is generally “еnforceable and not void as
against public policy so long as the fees awarded are fair, just and reasonable as determined by the
trial court upon full consideration of all of the circumstances of the case.”
Wilborn v. Bank One
Corp.
,
The district court, relying on our decision in
Big Lots Stores, Inc. v. Luv N’ Care, Ltd.
, 302
F. App’x 423, 426-29 (6th Cir. 2008), found the provision at issue here unenforceable because it was
a “standard paragraph in the Lease and was not negotiated between the parties” and constituted a
“one-way street” that only ran in favor of Andersons. In
Big Lots Stores
, we followed binding Ohio
аnd Sixth Circuit cases that voided similar provisions, notwithstanding “some indication of a shift
in the law” among Ohio courts.
Id.
Although Ohio courts remain divided,
see JPMorgan Chase
Bank, NA v. Corral
, No. 10 CAE 09 0079,
This Court agrees with LaFarge that this was a standard paragraph in the Lease and was not negotiated between the parties. Also, this provision was a “one-way street” that ran only in favor of Andersons. Further, this Court finds that thеre was a legitimate dispute between the parties as to the amount of the repairs and that both sides have “unclean hands” in the manner the “joint inspection” was handled at the outset.
In balancing the equities in the case and recognizing the ambiguity of Ohio law on this subject, the district court exercised its discretion, and we do not find its conclusion unreasonable.
For the reasons discussed above, the district court’s judgment is AFFIRMED in all respects.
Notes
[1] Although the case caption lists the Defendant as “LaFarge,” the parties write it аs “Lafarge.”
[2] A subsequent internal communication between Lafarge officials appears to confirm Lafarge’s negative assessment of the cars’ condition by describing them as “P.O.S.,” which the drafter testified at trial is “a colloquialism which I prefer not to repeat for The Court.”
[3] Although Barios consulted for Lafarge, his report was introduced at trial by Andersons over Lafarge’s objection.
[4] “A . . . lease . . . intended for a use related to interstate commerce shall be filed with the [Surface Transportation] Board in order to perfect the security interest that is the subject of such instrument. . . . When filed under this section, that document is notice to, and enforceable against, all persons.” 49 U.S.C. § 11301(a).
[5] Ohio courts have relied on this treatise for other issues.
E.g. McCumbers v. Puckett
, 918
N.E.2d 1046, 1052 (Ohio Ct. App. 2009);
Walbridge v. Carroll
,
[6] A heading and the summary of argument in Lafarge’s principal brief allude to an improper
admission of hearsay, but this assignment of error is forfeited because the brief fails to offer any
argument on that issue.
See Rawe v. Liberty Mut. Fire Ins. Co.
,
[7] We note that one panel of the Ohio Court of Aрpeals relied on our decision in
Big Lots
Stores
to void a non-negotiated, attorneys’-fee provision.
See Exec. Bus. Ctrs., Inc. v. TransPacific
Mfg,. Ltd.
, No. L-08-1060,
[8] Andersons argued in its reply brief that it is also entitled to attorneys’ fees pursuant to Ohio
Rev. Code § 1319.02 (recently transferred from § 1301.21). This position is forfeited because
Andersons sought attorneys’ fees solely pursuant to the contract in the district court and in its
principal brief on appeal.
See Armstrong v. City of Melvindale
,