Boardwalk Apartments, L.C. v. State Auto Property and Casualty Insurance Co.
Filing
435
MEMORANDUM AND ORDER granting in part and denying in part 358 Motion to Alter Judgment. Signed by District Judge Julie A. Robinson on 1/14/2015. (bw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
)
)
)
Plaintiff,
)
)
v.
)
)
STATE AUTO PROPERTY AND
)
CASUALTY INSURANCE COMPANY,
)
)
Defendant.
)
__________________________________________)
BOARDWALK APARTMENTS, L.C.,
Case No. 11-2714-JAR
MEMORANDUM AND ORDER
This insurance coverage action arose out of a 2005 fire at Boardwalk Apartments, L.C.’s
(“Boardwalk”) apartment complex in Lawrence, Kansas. Boardwalk was insured under a
commercial property insurance policy issued by State Auto Property and Casualty Insurance
Company (“State Auto”). The Policy’s business income, replacement cost, and coinsurance
provisions were at issue in this case, the second of two lawsuits filed to resolve coverage
disputes after the fire. The Court ruled on several matters on cross-motions for summary
judgment, narrowing the issues to be decided at trial. Beginning on June 24, 2014, this case was
tried to a jury. The jury returned verdicts in favor of Boardwalk on both breach of contract
claims, calculating damages for each claim and finding consequential damages in the amount of
$2,627,943. Before the Court is State Auto’s Motion to Alter or Amend Judgment Pursuant to
Rule 59(e) and/or for Relief from Judgment Pursuant to Rule 60(b) (Doc. 358), which includes a
request for remittitur. As described more fully below, the Court determines that the
consequential damages award is excessive and conditions the denial of a new trial on the amount
of consequential damages upon the acceptance by Boardwalk of a remittitur.
I.
Background
The Boardwalk apartment complex in Lawrence, Kansas, was located on Frontier Way,
which used to be called Fireside Drive. This dispute arises out of a fire that occurred on October
7, 2005 that destroyed Building 1 in the Boardwalk apartment complex. On March 27, 2006,
State Auto filed a lawsuit on certain coverage issues against Boardwalk in the Western District
of Missouri (“the Missouri Litigation”). The Missouri Litigation concluded on September 8,
2009. The Court determined on summary judgment that after the Missouri Litigation concluded,
Boardwalk timely elected to rebuild Building 1. Boardwalk contended at trial that State Auto
breached the insurance contract because it failed to pay the full amounts owed under the policy.
Boardwalk sought the cost to replace Building 1, which Boardwalk contended at trial was
$3,408,957. State Auto previously paid Boardwalk $2,128,794.17 as indemnity for Building 1,
but Boardwalk contended in this lawsuit that State Auto owed it an additional amount for the
replacement cost of Building 1. State Auto argued that the coinsurance provision of the Policy
applied, reducing its obligation to pay the full replacement cost, and therefore Boardwalk was
not entitled to any additional amounts under the terms of the Policy.
Second, Boardwalk contended it was entitled under the insurance policy to its lost rental
business income during the “period of restoration,” as well as consequential damages as a result
of State Auto’s failure to pay what was owed to Boardwalk under the Policy. State Auto
asserted a counterclaim that Boardwalk is not entitled to any additional payments under the
Policy because Boardwalk failed to cooperate with State Auto in the investigation or settlement
of its claims. State Auto further asserted that Boardwalk’s actual business income losses are
much lower than Boardwalk contended because Boardwalk should have replaced Building 1
2
more quickly than it did and because Boardwalk’s business income claim must be reduced by the
interest income Boardwalk earned on the prior indemnity payment during the time it took to
replace Building 1.
In the Pretrial Order entered on July 24, 2013, Boardwalk sought consequential damages
on both of its breach of contract claims, including “increased business income losses and
increased costs of construction due to building laws and ordinances passed during the pendency
of litigation.”1 In the Damages section of the Pretrial Order, Boardwalk sought “consequential
damages resulting from State Auto’s delay in honoring its obligations under the Policy.”2 Under
the business income loss heading, the parties set forth subsections (a) for “Compromise Figures”
and (b) “Boardwalk’s Expert’s Calculation.”3 The compromise figures set forth in subsection (a)
utilized Patrick Bello’s adjusted numbers and claimed actual damages of $1,046,322.42.
Boardwalk states on page 66: “State Auto is liable for the remainder of Boardwalk’s business
income losses above $949,200 ($97,122.42) because State Auto wrongfully sought to avoid
liability by filing suit [in the Missouri Litigation], thereby delayed Boardwalk’s ability to replace
Building 1 and stem its rental income losses.”4 The expert calculation in subsection (b) is based
on Boardwalk damages expert Joseph Lesovitz’s calculations, presented in the form of two
scenarios.5 Scenario 1 claimed $1,412,607 in business income loss based on historical rents and
a 69.5 month period of restoration, ending in July 2011. Scenario 2 claimed $2,001,362 based
1
Doc. 170 at 30.
2
Id. at 65, ¶ 10.a.1.
3
Id.
4
Id.
5
Id. at 66, ¶ 10.a.1.
3
on all business income loss resulting from the delay in payment, assuming a new building was
constructed in 2006.
On the replacement cost claim, Boardwalk requested the full replacement cost to rebuild
Building 1 with no coinsurance, as well as “Additional Costs of Construction Due to Laws and
Ordinances Regulating Reconstruction of Building 1,” to the extent that any limitation of
coverage for these costs was deemed to be against Kansas public policy.6 Within this category
of damages, Boardwalk “in addition” sought “recovery of maintenance and other costs it
incurred in maintaining Fireside Drive, for which it had to assume responsibility due to City of
Lawrence density requirements enacted in 2006, in order to replace the number of units
destroyed in the October 2005 fire.”7
In its March 28, 2014 Summary Judgment Order,8 the Court ruled on several discrete
issues in this case, including that the “compromise figures” by Bello did not bind State Auto.
The Court also ruled that Boardwalk was entitled to consequential damages on the replacement
cost claim in the amount of any business income loss that exceeded the business income policy
limit of $1,099,200, assuming it can show the requisite evidence of causation at trial. The Court
ruled on the business income loss claim that actual interest earned by Boardwalk from the 2006
indemnity payment should offset its business income loss, and allowed both damages experts to
revise their expert reports to align with the Court’s ruling on that issue.
Boardwalk presented extensive evidence at trial about the business income losses on
6
Id. at 66–67, ¶ 10.a.3.
7
Id.
8
Doc. 246.
4
Building 1. Bello and Lesovitz testified as to their lost business income calculations and Randall
Wilson testified on behalf of State Auto, presenting alternate calculations. In addition, Ernie
Fleischer, the managing member of Boardwalk, testified that he wanted to rebuild Building 1 as
soon as possible after the fire because he knew that the longer Building 1, the largest building in
the complex, was vacant, the harder it would be to rent out the remaining units in the complex.
Prior to the jury instruction conference, the Court proposed to submit the following
interrogatory to the jury on consequential damages based on its understanding that Boardwalk’s
consequential damages claim was limited to business income loss on Building 1 that was in
excess of the policy limit: “If the sum in answer to Question 1 [the replacement cost of Building
1] is greater than $2,128,794.17, did Boardwalk sustain “consequential damages” in the form of
rental business income loss, as defined in Instruction [ ]?” Boardwalk moved to strike the
language “in the form of rental business income loss, as defined in Instruction [ ]?” from this
interrogatory, arguing that this was just one item of consequential damages sought by Boardwalk
and supported by the evidence. Boardwalk pointed the Court to evidence that it was required to
secure its own insurance valuation experts, Paul Werner and Joseph Lesovitz, and that it was
required to acquire and maintain Fireside Drive as a result of code changes that occurred during
the delayed insurance claim process.9 State Auto objected, claiming that these were new items
of damages not previously disclosed. The Court sustained Boardwalk’s objection and struck the
limiting language from the verdict form. The only jury instruction concerning consequential
damages described the causation standard under Kansas law.10
9
Trial Tr., Vol. 7, Doc. 370 at 1361–62.
10
Doc. 338, Instruction No. 11; see, e.g., Royal Coll. Shop, Inc. v. N. Ins. Co. of N.Y., 895 F.2d 670, 678
(10th Cir. 1990).
5
At no point during the trial did Boardwalk request a specific amount of consequential
damages, nor specify to the jury the categories of consequential damages it contended was
supported by the evidence other than to reference ongoing maintenance of Fireside Drive. In his
closing argument, counsel for Boardwalk referenced the profitability of the complex as follows:
We know from the charts after the fire that the entire complex went into a
tailspin. Do you remember I showed Mr. Wilson? They were losing
money every year after that fire, because Building 1 meant huge—it was
huge in terms of profitability. Boardwalk is not seeking to recover its
losses in relation to the entire complex, even though there obviously were
additional damages. Not only did they lose the renters in Building 1, but it
had to affect, adversely affect the other buildings. As I said before, with a
football field long building that’s not there anymore, it obviously has an
effect. But we’re not asking for that, even though we could.11
And again, when discussing the saved expenses methodology on the business income claim,
counsel pointed to State Auto expert Randall Wilson’s opinion that imputed “an even larger
portion of savings” to Building 1 after the complex was demolished. He stated, “[t]hat would
only be appropriate if Boardwalk was seeking lost rental for the entire complex, which they’re
not.”12
During deliberations, the jury presented three written question to the Court,13 all of which
concerned consequential damages. First, the jury asked: “May we award attorney & court costs
as part of consequential damages? If so, do we just put an amount & attorney & court costs, or
do we need these figures.” The Court replied, after consultation with counsel, “No, you may not
award attorney fees or court costs as part of consequential damages.”
11
Trial Tr., Vol. 7, Doc. 370 at 1413.
12
Id. at 1414.
13
Doc. 345.
6
Second, the jury asked: “If we conclude there are consequential damages do we include
the difference between the Replacement value & the $2.1mm advance in this amount with other
damages?” The Court replied, after consultation with counsel, “You must be guided by
Instruction Number 11, as well as Instruction Number 1, which instructs you to consider all the
instructions as a whole.”
And third: “Will the jury be asked to provide explanation of our responses or to note the
exhibits used to reach this decision?” The Court replied, after consultation with counsel, “No.”
The jury returned a verdict in favor of Boardwalk on both breach of contract claims—for
replacement cost coverage and for business income loss. The verdict included a finding that the
replacement cost of Building 1 was $3,914,727.50, that the value of the complex was an amount
that precluded application of the coinsurance provision, that Boardwalk sustained $2,627,943 in
consequential damages, that the Period of Restoration ended on August 21, 2011, that business
income loss totaled $1,188,837.40, and that Boardwalk actually earned $99,706 in interest on the
prior indemnity payment. The jury also found that Boardwalk did not fail to cooperate with
State Auto during the investigation of its claims.
Based on the verdict, and after adjusting the damages awards for prior payments and
deductibles, the Court entered Judgment in favor of Boardwalk and against State Auto on July
10, 2014, in the following amounts: (1) $939,131.44 on the business income claim; (2)
$1,785,933.33 on the replacement cost claim; and (3) $2,627,943.00 in consequential damages.
II.
Discussion
The parties have filed extensive post trial briefs on several motions pending before the
Court. State Auto challenges the consequential damages award in three of these motions:
7
Motion for New Trial Pursuant to Rule 59(a) (Doc. 356), the instant Motion to Alter or Amend
Judgment Pursuant to Rule 59(e) and/or for Relief from Judgment Pursuant to Rule 60(b) (Doc.
358), and its Renewed Motion for Judgment as a Matter of Law (Doc. 360). The renewed
motion for judgment as a matter of law challenges, inter alia, the sufficiency of the evidence to
support the consequential damages award. The motion to alter or amend challenges the
sufficiency of the evidence, as well as alleges unfair surprise because the Pretrial Order did not
put State Auto on notice of the scope of consequential damages ultimately awarded at trial. State
Auto requests remittitur in the alternative in its motion to alter or amend, and moves separately
for a new trial arguing that the consequential damages award is clearly, decidedly, or
overwhelmingly against the weight of the evidence.
The Court heard oral argument on this issue on November 18, 2014. Although the Court
has considered the statements of counsel at oral argument in ruling on this motion, it will confine
its analysis to the issues raised in the briefs, to which Boardwalk was allowed to respond. For
example, at oral argument State Auto argued for the first time that consequential damages may
not be awarded in an amount higher than the contract, and that Boardwalk could not recover
consequential damages because of the doctrine of unclean hands. Neither argument is raised in
the briefs and therefore the Court does not consider them.14
The Court first addresses State Auto’s motion to alter or amend to based on unfair
surprise and prejudice. The Court next considers the sufficiency of the evidence as to the
consequential damages award, including State Auto’s request for remittitur, which must be
considered as an alternative to a new trial. This is because “in an ordinary remittitur case, the
14
The Court notes for the record that the consequential damages award was less than the jury’s award of
actual damages on the replacement cost claim.
8
plaintiff must be offered a choice between a new trial and accepting a remittitur to avoid a
serious problem under the Seventh Amendment, which reserves to the jury the determination of
damages.”15
A.
Unfair Surprise and Prejudice
A motion to alter or amend judgment pursuant to Rule 59(e) may be granted only if the
moving party can establish: (1) an intervening change in the controlling law; (2) the availability
of new evidence that could not have been obtained previously through the exercise of due
diligence; or (3) the need to correct clear error or prevent manifest injustice.16 Rule 60(b)
provides that the Court may relieve a party from a final judgment for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence,
could not have been discovered in time to move for a new trial
under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged; it is
based on an earlier judgment that has been reversed or vacated; or
applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.17
The Court agrees with Boardwalk that Rule 59(e) and 60 have a limited role in this posttrial analysis. Both are inappropriate grounds to challenge the sufficiency of the evidence on
consequential damages, which instead must be considered in the context of Rule 50(b) or 59(a).18
15
O’Gilvie v. Int’l Playtex, Inc., 821 F.2d 1438, 1447 (10th Cir. 1987).
16
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000); Brumark Corp. v. Samson Res.
Corp., 57 F.3d 941, 948 (10th Cir. 1995).
17
Fed. R. Civ. P. 60(b).
18
Elm Ridge Exploration Co. v. Engle, 721 F.3d 1199, 1216 (10th Cir. 2013).
9
And to the extent State Auto asks the Court to alter or amend the judgment by reducing the
consequential damages award, this is properly considered as a request for remittitur, which under
certain circumstances may be granted as an alternative to a new trial under Rule 59(a).19
State Auto argues that the element of unfair surprise and prejudice here is based on the
lack of notice in the Pretrial Order about the scope of consequential damages sought by
Boardwalk. According to State Auto, Boardwalk is limited by the Pretrial Order to claim at most
$588,755 in consequential damages based on the difference between Lesovitz’s alternative
damages scenarios set forth in that document.
The Court disagrees with State Auto that the Pretrial Order limited the scope of
consequential damages sought at trial by Boardwalk. The Pretrial Order made clear that
Boardwalk sought all consequential damages that flowed from the breach, or were within the
reasonable contemplation of the parties as resulting from the breach, i.e. the delayed payment for
replacing Building 1. It made clear that Boardwalk sought additional business income losses in
excess of the policy limit. It also made clear that it was seeking consequential damages for the
maintenance of Fireside Drive, which Boardwalk acquired due to changes in laws and
ordinances passed during the delay in payment. While increased law and ordinance costs were
included in the replacement cost of Building 1, the costs to maintain the road were not, which is
why these damages were sought “in addition to” the increased costs to comply with modern laws
and ordinances passed in 2006 and 2008.
Moreover, the Pretrial Order, while controlling as to the parties’ claims and defenses, did
not square off the specific amount of consequential damages Boardwalk could claim at trial. The
19
See O’Gilvie, 821 F.2d at 1447.
10
Pretrial Order was entered in July 2013, before the Court’s summary judgment ruling, and before
the Court ruled on State Auto’s Daubert motion with respect to Lesovitz. Based on those orders,
the Court allowed both damages experts to amend their reports in order to address the Court’s
ruling on interest income, a ruling that was unaccounted for at the time the Pretrial Order was
drafted. As long as Boardwalk was able to show that the consequential damages it sought at trial
derived from the breach—i.e. the delayed payment— those damages were sufficiently pled in the
Pretrial Order and should not have come as an unfair surprise to State Auto.
B.
Sufficiency and Excessiveness of the Consequential Damages Award and
Request for Remittitur
State Auto challenges the consequential damages award as excessive and lacking an
evidentiary basis and asks the Court to reduce the Judgment. This challenge is properly
considered in the posture of a motion for remittitur.20 In considering this argument, the Court
must begin with the proposition that the jury’s award is “inviolate” so long as “it is not so
excessive as to shock the judicial conscience and to raise an irresistible inference that passion,
prejudice, corruption, or other improper cause invaded the trial.”21 The Court should not order a
new trial or remittitur when the amount of damages turns on weighing credibility of the
witnesses, or resolving conflicting evidence.22
In a diversity case such as this one, state law governs whether an award of damages is
20
See, e,g., O’Gilvie., 821 F.2d at 1447–48; Royal Coll. Shop, Inc. v. N. Ins. Co. of N.Y., 895 F.2d 670,
678–79 (10th Cir. 1990); M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 766 (10th Cir. 2009).
21
Prager v. Campbell Cnty. Mem’l Hosp., 731 F.3d 1046, 1062 (10th Cir. 2013) (quotation marks and
citations omitted).
22
Palmer v. City of Monticello, 31 F.3d 1499, 1508 (10th Cir. 1994).
11
excessive or inadequate.23 Boardwalk was entitled to recover damages that “may fairly be
considered as arising, in the usual course of things, from the breach itself, or as may reasonably
be assumed to have been within the contemplation of both parties as the probable result of the
breach.”24 “[I]n order for evidence to be sufficient to warrant recovery of compensatory damages
there must be some reasonable basis for computation which will enable a court or jury to arrive
at an approximate estimate thereof.”25 Contract damages do not have to be established with
reasonable certainty, however, they “cannot be too conjectural and speculative to form a sound
basis for measurement.”26 The Kansas Supreme Court has explained the distinction between
causation and damages evidence on breach of contract claims as follows:
The measure of damages recoverable for a breach of contract is limited to
such as may fairly be considered as arising in the usual course of things
from the breach itself, or as may reasonably be assumed to have been
within the contemplation of the parties as the probable result of such a
breach. The evidence allowed to support damages for breach of contract
is the best evidence obtainable under the circumstances of the case to
show the natural and ordinary consequences of the breach and which will
enable the court or the jury to arrive at a reasonable estimate of the loss
which resulted.27
Boardwalk contends that there was evidence of causation and damage on the following
categories, sufficient to support the jury’s consequential damages award: (1) consequential
business income loss on Building 1; (2) fees to obtain valuation of insurance losses of
23
Id. (citing Smith v. Ingersoll-Rand Co., 214 F.3d 1224, 1251 (10th Cir. 2000)).
24
Hochhman v. Am Family Ins. Co., 673 P.2d 1200, 1203 (Kan. Ct. App. 1984); see also Earth Scientists
(Petro Servs.) Ltd. v. U.S. Fid. & Guar. Co., 619 F. Supp. 1465, 1475 (D. Kan. 1985).
25
Denman v. Aspen Drilling Co., 520 P.2d 1303, 1307 (Kan. 1974).
26
Brown v. United Methodist Homes for the Aged, 815 P.2d 72, 86 (Kan. 1991).
27
Phillips & Easton Supply Co. v. Eleanor Int’l, Inc., 512 P.2d 379, 386 (Kan. 1973) (citations omitted).
12
approximately $150,000 to Werner and Lesovitz; (3) architectural fees in the amount of
$450,000 to Werner; (4) complex-wide rental income losses; (5) acquisition and maintenance of
Fireside Drive as a result of code changes; and (5) interest and fees on a construction loan from
Commerce Bank.
1.
Additional Business Income Loss on Building 1
State Auto urges that Boardwalk is only entitled to recover consequential damages in the
form of business income lost after the period of restoration but before Building 1 was fully
occupied. State Auto extrapolates the jury’s finding of a $16,799.24 loss figure for the thirty
days after Building 1 was actually replaced,28 and argues that for the nine-month period between
August 2011 and May 2012, there could be no more than $151,193.16 in total consequential
damages. Boardwalk contended, and the jury agreed, that State Auto breached the Policy by
failing to pay the full replacement cost of Building 1. Boardwalk further argued that the delay in
paying on the replacement cost claim increased its business income loss on Building 1 based on
the changes in building codes that went into effect during the delay, and because a new building
could have commanded higher rents and occupancy rates. The request was not limited to the
period after the Period of Restoration provided for under the business income loss policy
provision. While State Auto presents one approach to calculating consequential damages that is
certainly permitted by the evidence, the Court’s task on this motion is to determine whether the
jury’s award is supported by some reasonable basis for computation that allowed the jury to
reach a reasonable estimate of the loss. As Boardwalk points out, and as described below, the
jury could have relied on Lesovitz’s testimony to reasonably compute more than $151,194.16 in
28
Doc. 341, Interrogatory 6.c.
13
consequential damages.
Lesovitz testified about his business income loss findings for Building 1 under two
scenarios. Under Scenario 1, he quantified rental income loss of $1,462,902 for the period
October 7, 2005 through August 2011, assuming the historic rents of the former Building 1,
which he testified slightly increased from 2006 through 2011 based on information he reviewed
about the Lawrence, Kansas, market. In Scenario 2, Lesovitz quantified rental income loss of
$2,051,656, assuming that a brand new building was built in the place of Building 1 in
September 2006 that would have commanded higher rents and higher occupancy rates. From
October 2005 until October 2006, Scenario 2 relied on historic rental rates of former Building 1,
and then starting in October 2006 through May 2012, relied on higher rent and occupancy rates.
State Auto argues that since Lesovitz’s two scenario timelines overlap, then Boardwalk
could only recover consequential damages under Scenario 2 for the additional amount of rent
over the historic rental rate between October 2006 and May 2012. State Auto argues that under
this formula, Boardwalk’s damages could be no more than $588,754, the difference between
Scenario 1 and Scenario 2. Boardwalk responds by arguing that instead, the jury could have
simply subtracted its business income loss finding of $1,188,837.40, from Lesovitz’s Scenario 2
(after a reduction for the partial payment) to reach a consequential damages figure. After
adjusting for interest earned and the prior payments, this would leave $962,514.56 as the amount
of consequential rental income damages Boardwalk would have earned had it been able to
rebuild by September 2006, given Lesovitz’s Scenario 2 figures. Lesovitz testified that his
figures were based on conservative assumptions.
The Court agrees with Boardwalk, that the jury could have reasonably relied on
14
Lesovitz’s testimony that Scenario 2 represented consequential damages in the form of business
income on Building 1 that would have exceeded historical rents, and would support $962,514.56
of the consequential damages given the jury’s actual damages finding. It is clear from the
verdict that the jury found actual business income losses somewhere between the figures used by
Bello in 2006, and the figures used by Lesovitz in Scenario 1. The jury was entitled to credit and
adjust the numbers provided by Lesovitz in awarding consequential damages even if it did not
rely on those numbers to award actual damages, and the Court need not “run the exact numbers
and calculations of a damages model with mathematical certainty.”29 The Court only must
determine whether the award was within the range permitted by the evidence and whether there
was some reasonable basis to compute the additional consequential damages associated with
Building 1’s business income losses. Without weighing credibility or resolving evidentiary
conflicts, the evidence presented by Lesovitz permitted a finding that an additional $962,514.56
in business income loss on Building 1 was caused by State Auto’s failure to timely pay on the
replacement cost claim.
2.
Insurance Valuation and Architectural Fees
State Auto concedes that there was evidence to support the insurance valuations and
architectural fees to Werner and Lesovitz.30 Moreover, a reasonable jury could conclude that
these fees were necessitated by the delay in valuing State Auto’s business income claim,
29
In re Urethane Antitrust Litig., 768 F.3d 1245, 1268 (10th Cir. 2014) (quotation omitted); see also Russo
v. Ballard Med. Prods., 550 F.3d 1004, 1019 (10th Cir. 2008) (affirming higher award than that testified to by expert
where expert testified it was a conservative estimate).
30
Indeed, this evidence was elicited by State Auto. See Trial Tr. vol. 3, Doc. 366 at 773–74 (Werner
testimony about approximately $400,000 to $500,000 in architectural fees and $50,000 in expert witness fees); Trial
Tr. vol. 5, Doc. 368 at 927 (Lesovitz testimony about $100,000 expert witness fee).
15
requiring Boardwalk to obtain independent valuations out of pocket. Based on evidence of
increased fees to value the insurance claims and to adjust the architectural plan, along with the
business income losses on Building 1, the Court finds that the jury could have awarded
$1,562,514.56 in consequential damages. Such evidence may be found in the record without
assessing the credibility of witnesses, or resolving conflicting evidence.
3.
Loss of Complex-Wide Business Income
As to complex-wide rental income, State Auto argues that there was no evidence of
causation to support such damages because Boardwalk’s decision to demolish the other buildings
was not proximately caused by the fire. The Court finds that there was sufficient evidence of
causation of complex-wide business income losses. The cause of Boardwalk’s consequential
damages need not be the fire. The cause must derive from the breach—State Auto’s failure to
pay the full replacement cost of Building 1. Boardwalk argues that it suffered complex-wide
business income loss because Building 1 was the largest building in the middle of the complex
and its demolition made it more difficult to rent out the other apartments remaining in the
complex. Boardwalk points to Fleisher’s testimony that he wanted to rebuild Building 1 as soon
as possible in order to avoid the lost rental income that he believed would result from a vacant
lot where the biggest building in the complex once stood. And Lesovitz testified that while he
did not quantify the complex-wide losses in either Scenario 1 or 2, those losses would have been
much higher. Most probative, however, are the profit and loss statements offered by State Auto
and discussed during Wilson’s testimony. Those profit and loss statements show that each year
after the fire, the complex profits dropped dramatically, and by 2009, the complex was operating
at a loss. The Court agrees that based on this evidence, the jury could have concluded that State
16
Auto should have reasonably anticipated that delaying payment on the replacement cost claim
would adversely affect Boardwalk’s business income on the other buildings in the complex.
While the Court finds that the complex-wide losses associated with the delayed payment
on Building 1 is a correct measure of consequential damages, the Court is unable to find that
there was sufficient evidence that would provide the jury with a reasonable basis to compute
such losses. Lesovitz testified about the complex’s net profits in the context of describing his
determinations of saved expenses for Building 1.31 He testified that before the fire, the entire
complex had a net profit of between $300,000 to $350,000 per year for all of the buildings,
compared to Building 1, which had a net profit of about $200,000 per year. Boardwalk argues
that since this estimate is about 1.75 times the Building 1 lost profits of $200,000 annually, the
jury could have determined complex-wide rental income losses as high as $1.6 million by
multiplying the actual damages of $939,141 by 1.75. But Lesovitz’s testimony about complexwide profits assumed the total loss of the entire complex: “if you destroy or demolish the entire
complex, you’re losing all $350,000 of profit. . . . I’m only quantifying the rental income losses
for Building 1, which is about $200,000. So it doesn’t include the rental income losses related to
the other buildings.”32 Lesovitz explicitly denied calculating business income loss for the entire
complex.33 Similarly, the profit and loss statements for the years 2004 through 2010 show that
the complex continued to lose profits after the fire at a high rate. By 2009, the complex was
operating at a loss. However, there was no evidence to aid the jury in determining how much of
31
See, e.g., Trial Tr. Vol. 4, Doc. 367 at 889–95; Vol. 5, Doc. 368 at 961–62.
32
Trial Tr. Vol. 5, Doc. 368 at 961–62.
33
Trial Tr. Vol. 4, Doc. 367 at 894; Vol. 5, Doc. 368 at 961–62.
17
this loss, exclusive of Building 1, should be considered “business income loss” for the complex.
Unlike Building 1, neither expert calculated losses to the complex.
There was no evidence presented at trial that the complex was entirely untenantable after
the fire. Nor was any evidence presented at trial about the degree to which the complex’s
occupancy rate, or rental rate decreased due to the missing Building 1. Boardwalk essentially
proposes a lost profits analysis on the complex, rather than a business income analysis, which
would be dictated by the terms of the Policy. Also, the Court disagrees with the degree of
extrapolation by Boardwalk. Its $1.6 million estimate would account for a double recovery as it
is inclusive of the business income losses associated with Building 1. Fully crediting Lesovitz’s
testimony on this point, the evidence only would have permitted the jury to reasonably infer that
some portion of the $100,000–$150,000 remaining annual net profit on the complex was lost due
to the delayed reconstruction of Building 1. This remaining net profit is one-half to threequarters of the loss attributable to Building 1. Given that there was no evidence in the record
about the degree to which the remaining buildings lost business income, it would be pure
speculation for the jury to quantify non-Building 1 losses based solely on Lesovitz’s testimony.
Moreover, the timeline for business income loss would not necessarily be the same as for
Building 1 given the undisputed evidence that Boardwalk began to evacuate tenants in the other
buildings in 2009 in order to demolish the other buildings.34 Therefore, the Court finds that it
would not have been reasonable for the jury to conduct a rote extrapolation of the Building 1
business income loss, or pre-fire net profits, in order to reach a complex-wide business income
loss amount.
34
Trial Tr. Vol. 4, Doc. 367 at 893; Vol. 5, Doc. 368 at 961.
18
Likewise, while the jury could have considered Boardwalk’s profit and loss statements, it
was provided no guidance about how to attribute any lost profits to the delayed payment. Those
statements showed Boardwalk’s net profits decreased from around $288,568 in 2004 to a loss of
$17,042 by 2009.35 Again, while this evidence is probative that the loss of Building 1 caused
complex-wide profits to decline, there is no evidence in the record to assist the jury in computing
the loss attributable to the breach, rather than to Boardwalk’s decision to proceed to replace the
entire complex instead of just Building 1. And importantly, counsel for Boardwalk told the jury
twice during his closing argument that Boardwalk was not seeking damages based on the
complex’s lost profits.36 The Court is cognizant that under Kansas law, Boardwalk need not
prove damages with absolute certainty, however, the Court is unable to find that the evidence
was sufficient to permit even a reasonable approximation of complex-wide losses. Instead, such
an approximation would have been based on speculation or conjecture.
4.
Fireside Drive
Boardwalk also sought consequential damages in the form of maintaining Fireside Drive
as a result of code changes during the period of restoration. Again, the Court finds that there was
certainly evidence presented at trial that increased costs of maintaining Fireside Drive flowed
from the breach. Werner testified at length about the decision to acquire Fireside Drive and how
it was necessitated by code changes that took effect in the summer of 2006, while the Missouri
litigation was pending. But again, the Court finds that there was no evidentiary basis for the
jury to reasonably approximate a measure of these damages. In fact, Fleischer testified that he
35
Ex. 491a.
36
Trial Tr., Vol. 7, Doc. 370 at 1413, 1414.
19
had tried to quantify these damages, but was unable to do so:
Q.
A.
Q.
A.
Q.
A.
Do you know—let me ask you to—when you say that Boardwalk
has the responsibility to maintain the street, what does that mean?
Everything that the city had been doing before; cleaning the street,
removing snow, filling potholes, oiling the street, re-paving the
street. Everything that I had observed over my lifetime that I saw
the city doing to make certain that the street in front of my house
looked nice and cars wouldn't break their axles, passengers would
have a smooth ride.
Is this an ongoing obligation, ever-ending—never-ending
obligation?
Never-ending, going on forever.
Okay. And do you know what this is going to cost?
I do not. I have attempted unsuccessfully in getting somebody to
tell me what the cost is forever.37
Boardwalk did not present evidence of its current costs to maintain Fireside Drive.
Boardwalk did not present evidence as to whether it contracted with an outside entity to provide
all of these services, or whether it maintained the road in whole or in part by using its own
employees. Boardwalk did not present invoices or bids from contractors that might provide the
jury with a method to calculate these damages. Boardwalk instead focuses on Instruction No.
21, where the jury was told that it could “draw reasonable inferences from the testimony and
exhibits you feel are justified in the light of common experience.”38 While it is true that the
jurors were entitled to draw on common experience in weighing the evidence, when considering
consequential economic damages on a contract claim, they were required to have some
evidentiary basis for reaching their award.39 And even assuming that they could draw on their
common experience in determining the costs associated with maintaining a road in Lawrence,
37
Doc. 371, at 22.
38
Doc. 338, Instruction No. 21.
39
See, e.g., Denman v. Aspen Drilling Co., 520 P.2d 1303, 1307 (Kan. 1974).
20
Kansas, the Court cannot find that common sense or experience would support an award of
approximately $1 million in street maintenance costs, the shortfall necessary to reach the jury’s
total consequential damages award.
5.
Commerce Bank Loan
Likewise, as Boardwalk admits, there was no evidence in the record about the loan
amount, fees, or interest associated with the Commerce Bank loan Boardwalk was required to
obtain in order to finish the complex replacement without the full insurance payment. The jury
could not have relied on such costs as contributing to the compensatory damages associated with
the breach.
III.
Conclusion
“When a court concludes that there was error only in the excessive damage award, but
not error tainting the finding of liability, it may order a remittitur or grant a new trial if the
plaintiff refuses to accept the remittitur.”40 It is clear to the Court that the jury attempted to
follow the instructions in this case, despite very limited guidance from the parties regarding the
consequential damages claim. Boardwalk did not request an amount of consequential damages,
nor did the instructions provide any guidance to the jury about the types of consequential
damages sought. During closing argument, Boardwalk mentioned its consequential damages
claim with regard to Fireside Drive and explicitly told the jury it was not claiming damages for
complex-wide losses. The only instruction proposed by the parties and provided to the jury was
on the applicable causation standard. It appears from the written jury questions during
deliberations that the jurors struggled with how to compute the consequential damages in this
40
Klein v. Grynberg, 44 F.3d 1497, 1504 (10th Cir. 1995).
21
case.
Unfortunately, while not the product of bias, passion, or prejudice, the award was
excessive because it was not entirely supported by the evidence. The Court notes that the
consequential damages claims in this case were economic, so they were capable of reasonable
approximation in a manner not necessarily available in cases where the consequential damages
are mainly non-economic.41 Given the standard that applies under Kansas law for the quantum
of proof necessary to support contract damages, the Court is unable to find an evidentiary basis
for certain categories of damages claimed by Boardwalk in its post-trial briefs. Accordingly, the
Court finds that State Auto’s request for remittitur should be granted to the extent the damages
award exceeds the amounts supported by the trial evidence on the Building 1 consequential
business income losses, and the insurance valuation and architectural fees that were incurred as a
result of the delayed insurance payment. The Court finds that the jury’s damages award
therefore should be reduced to $1,562,514.56.
As outlined above, while the Court finds that the jury’s verdict on consequential damages
was excessive under Kansas law, it is satisfied that the verdict on liability and actual damages is
sound and based on the jury’s careful consideration of the evidence and instructions in this case.
As described in the Court’s order on the renewed motion for judgment as a matter of law, and
motion for new trial, the jury’s determinations are consistent with the evidence when viewed in
41
See, e.g., Prager v. Campbell Cnty. Mem’l Hosp., 731 F.3d 1046, 1062 (10th Cir. 2013) (declining to
grant remittitur on loss of consortium claim); United Int’l Holdings v. Wharf (Holdings) Ltd., 210 F.3d 1207,
1229–30 (10th Cir. 2000) (declining to grant remittitur on compensatory damages claim where witness testimony
established amount of damages); Palmer v. City of Monticello, 31 F.3d 1499, 1508 (10th Cir. 1994) (declining
remittitur where jury awarded an amount of damages less than requested by the plaintiff and calculated by the
expert); Griffith v. Mt. Carmel Med. Ctr., 842 F. Supp. 1359, 1371–72 (D. Kan. 1994) (granting remittitur as to noneconomic damages where the jury’s determination was contrary to the evidence).
22
the light most favorable to Boardwalk.
The Court may not simply amend the judgment to reflect this reduced award. Under
federal law, which governs the Court’s procedure in this case, Boardwalk must be offered the
choice between a new trial and accepting the remittitur, in order to avoid problems under the
Seventh Amendment to the United States Constitution.42 If Boardwalk chooses to accept
remittitur of the consequential damages award to $1,562,514.56, they shall file a written notice
to that effect on or before January 28, 2015. If Boardwalk does not accept the remittitur, State
Auto shall be entitled to a new trial on the issue of Boardwalk’s consequential damages.
IT IS THEREFORE ORDERED BY THE COURT that State Auto’s Motion to Alter
or Amend Judgment Pursuant to Rule 59(e) and/or for Relief from Judgment Pursuant to Rule
60(b) (Doc. 358) is granted in part and denied in part.
If Boardwalk chooses to accept remittitur of the damages awarded on its claim for breach
of contract to $1,562,514.56, it shall file a written notice to that effect on or before January 28,
2015. If Boardwalk does not accept the remittitur, State Auto shall be entitled to a new trial on
the issue of Boardwalk’s consequential damages for breach of contract.
Dated: January 14, 2015
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE
42
O’Gilvie v. Int’l Playtex, Inc., 821 F.2d 1438, 1447–48 (10thCir. 1987); see also In re Universal Serv.
Fund Tel. Billing Practices Litig., No. 02-MD-1468-JWL, 2009 WL 435111, at *11 (D. Kan. Feb. 20, 2009), aff’d,
619 F.3d 1188 (10th Cir. 2010).
23
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?