Kansas City Live Block 124 Retail, LLC v. Kobe Kansas, LLC et al
Filing
82
MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 6/20/2017. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
KANSAS CITY LIVE BLOCK
124 RETAIL, LLC,
:
:
Plaintiff and
Counter-Defendant,
:
v.
Civil Action No. GLR-14-3236
:
KOBE KANSAS, LLC, et al.,
:
Defendants and
Counter-Plaintiffs.
:
MEMORANDUM OPINION
THIS MATTER is before the Court on Defendant/Counter-Plaintiffs
Kobe Kansas, LLC, Young W. Bae, and Chan H. Bae’s (the “Baes”) Motion
for Partial Summary Judgment (ECF No. 67).
disposition.
2016).
No hearing is necessary.
See Local Rule 105.6 (D.Md.
For the reasons that follow, the Court will deny the Motion.
I.
As
The Motion is ripe for
discussed
in
BACKGROUND
previous
Opinions,
this
action
arises
principally out of a dispute concerning a commercial lease (the
“Lease”) between the Baes and Plaintiff/Counter-Defendant Kansas City
Live Block 124 Retail, LLC (“KC Live”).
The Lease became effective
on September 15, 2008 for a ten-year term.
§§ 101, 201(b), ECF No. 1-3).
(Compl. Ex. 2 [“Lease”]
In September 2009, the Baes executed a
personal guaranty (the “Guaranty”) of their obligations under the
Lease.
(Second Am. Compl. ¶ 18, ECF No. 34).
Under the Lease, the Baes rented approximately 7,500 square feet
of commercial space (the “Premises”) in the Kansas City Power and
Light District (the “District”).
(Lease § 201(a)).
The Baes agreed
to operate a “high end” KOBE Japanese Steakhouse restaurant in the
Premises.
(Id. § 201(c)).
The Lease requires the Baes to pay both
Minimum Rent and Additional Rent (collectively “Rent”) for the
Premises.
(Id. §§ 201(d), 301).
Additional Rent includes taxes, as
well as charges for common area maintenance, promotional activities,
and trash receptacles.
(Id. §§ 8, 10, 11, 17).
The Lease also
requires the Baes to operate their restaurant during Minimum Store
Hours, which the Lease defines as 11 a.m. to 10 p.m. on Sunday
through Thursday, and 11 a.m. to 11 p.m on Friday and Saturday.
(Id.
§ 201(q)).
Section 26 of the Lease governs default.
Lease § 2602(vii)
(“Section 2602(vii)”) provides that if the Baes fail to operate their
restaurant during Minimum Store Hours for more than three consecutive
days, then KC Live shall be entitled to treble damages:
If [the Baes] fail[] to conduct [their] business
operations at the Premises during the Minimum
Store hours for more than three (3) consecutive
business days, it is agreed and understood that
[KC Live] shall have been deprived of an
important right under this Lease and, as a
result thereof, shall suffer damages in an
amount which is not readily ascertainable;
therefore, in addition to, and not in lieu of,
any other remedies which [KC Live] has under
this Lease, at law or in equity, [KC Live] shall
have the right to collect as liquidated damages
(and not as a penalty) three (3) times the Rent
due for each month, or portion thereof, that
such discontinuance shall persist.
Lease § 2605 (“Section 2605”) provides that if the Baes fail to pay
Rent in accordance with the terms of the Lease, then KC Live shall be
2
entitled to late charges:
If [the Baes] fail[] to pay any Rent in
accordance with the provisions of this Lease
when such Rent becomes due and payable as
specified in [this Lease], [the Baes] shall pay
to [KC Live] a late charge equal to the greater
of five percent (5%) of the amount due or Two
Hundred Fifty Dollars ($250.00) for each month
that such Rent remains unpaid and, in addition,
such unpaid Rent shall bear interest at the
Lease Interest Rate. Such late charge and
interest shall constitute Additional Rent
hereunder immediately due and payable.
Additionally, Lease § 402 (“Section 402”) obligates the Baes to
pay Rent plus additional damages if the Baes do not open their
restaurant on the Rent Commencement Date.1
The additional damages
are $1,833 per day until the Baes open their restaurant.
§ 402).
The Rent Commencement Date was February 6, 2009.
11-2171, Compl. ¶ 7, ECF No. 1).
(Lease
(See WDQ-
The Baes did not open their
restaurant until October 17, 2009 -- eight months after the Rent
Commencement Date.
(Fowler Aff. ¶ 10, ECF No. 72-1).
In August 2011, KC Live sued the Baes in this Court, alleging
several breaches of the Lease and Guaranty (the “2011 Suit”).
(Second Am. Compl. ¶ 22).
Three months later, the parties entered
into an Amendment to Lease (the “2011 Amendment”) as a means of
settling the 2011 Suit.
1
(Id. ¶ 23).
In the 2011 Amendment, the
The Lease defines the Rent Commencement Date as the “next
calendar day after the last day of the Fixturing Period or the date
[the Baes] open[] for business, whichever is earlier.”
(Lease §
321).
The Lease contemplates that the “Fixturing Period” is the
period in which the Baes install the fixtures and equipment necessary
to operate their restaurant. (See id. § 307).
3
parties stipulated that as of July 31, 2011, the Baes owed KC Live
$2,122,430.88 under the Lease (the “Stipulated Amount Owed”).
24).
The Stipulated Amount Owed comprises the following:
Description
Rent Owed from February 16, 2009 through
October 17, 2009 when the Baes were not Open
for Business
Interest on Rent Owed from February 16, 2009
through October 17, 2009
Late Charges under Lease Section 2605 on Rent
Owed from February 16, 2009 through October
17, 2009
Liquidated Damages under Lease Section 402
for the Baes' failure to open restaurant
until October 17, 2009
Late Charges under Lease Section 2605 on
Liquidated Damages for Late Opening
Interest on Liquidated Damages for Late
Opening2
Rent Owed after October 17, 2009
Interest on Rent Owed after October 17, 2009
Late Charges under Lease Section 2605 on Rent
Owed after October 17, 2009
Total
(Id.).
the
(Id. ¶
Amount
$
224,313.57
$
7,885.20
$
57,721.15
$
463,749.00
$
605,531.55
$
97,078.19
$
288,732.96
$
59,457.68
$
317,961.59
$
2,122,430.89
The parties also agreed that if the Baes paid $ 350,446.93 of
Stipulated
Amount
Owed
(the
“2011
Settlement
Amount”)
and
complied strictly with the Lease and the 2011 Amendment through their
terms, KC Live would waive the balance of the Stipulated Amount Owed.
(Id. ¶¶ 27, 28).
2
The parties further agreed that in return for
Section 2605 addresses late charges for failure to pay Rent. KC
Live does not appear to identify the portion of the Lease that
permits it to impose late charges for failure to pay liquidated
damages.
4
strict compliance with the Lease and 2011 Amendment, KC Live would
abate the Common Area Maintenance Costs for which the Baes would be
responsible for paying for the period of November 1, 2011 through
October 31, 2013.3
(Id. ¶ 29).
The Baes paid the 2011 Settlement Amount.
(Fowler Aff. ¶ 37).
Nonetheless, KC Live initiated the instant action in October 2014,
alleging breach of the Lease, Guaranty, and 2011 Amendment.
ECF No. 1).
(Compl.,
In its Second Amended Complaint, KC Live asserts that
between November 1, 2011 and October 31, 2013, the Baes failed to pay
Rent on a timely basis.
(Second Am. Compl. ¶ 36).
According to KC
Live, after November 2013, the Baes ceased paying rent altogether.
(Fowler Aff. ¶ 36).
KC Live also alleges that the Baes “repeatedly
and continuously failed to operate [their restaurant] during the
Minimum Store Hours required by the Lease.”
(Id. ¶ 38).
For
example, on Sundays, the Baes closed their restaurant, and on
Saturdays, the Baes only opened their restaurant from 4:30 p.m. to
10:30 p.m.
(Id.).
What is more, the Baes purportedly further
violated the Minimum Store Hours requirement, as well as other Lease
provisions, when they totally abandoned the Premises in or before May
2016 -- long before the expiration of the Lease term.
(Fowler Aff.
¶ 36).
3
Section 1002 of the Lease discusses Common Area Maintenance
5
KC
Live
seeks
$3,210,941.51,
asserting
that
this
figure
represents the total amount due and owing as of February 22, 20164
under
the
Lease,
Guaranty,
and
2011
Amendment,
exclusive
of
attorneys’ fees and liquidated damages for failure to operate during
Minimum Store Hours. (Id. ¶ 48).
The $3.2 million figure comprises
the unpaid balance of the Stipulated Amount Owed: $1,771,983.95.
(Id. ¶ 45).
The remainder includes unpaid Rent, late charges, and
interest charges, as well as the Common Area Maintenance Costs that
KC Live abated conditionally in the 2011 Amendment.
(Id. ¶¶ 46, 47).
KC Live also seeks liquidated damages under Section 2602 (vii) “in a
specific amount to be determined at trial,” for each month, or potion
thereof, in which the Baes did not operate during Minimum Store
Hours.
(Id. ¶ 49).
The Court has already resolved multiple motions in this case.
(See ECF No. 26) (denying KC Live’s Motion to Dismiss Counterclaim);
(ECF No. 57) (granting KC Live’s Motion for Leave to File Second
Amended Complaint, granting the Baes’ Motion for Leave to File
Amended Counterclaim, and denying without prejudice KC Live’s Motion
for Summary Judgment).
On October 18, 2016, the Baes filed the
present Motion for Partial Summary Judgment.
filed its opposition on December 22, 2016.
(ECF No. 67).
(ECF No. 72).
KC Live
To date,
the Court has no record that the Baes replied.
Costs.
4
KC Live notes that damages continue to accumulate.
Fowler Aff. ¶ 38).
6
(See
II.
A.
DISCUSSION
Standard of Review
In reviewing a motion for summary judgment, the Court views the
facts in a light most favorable to the nonmovant, drawing all
justifiable inferences in that party’s favor.
Ricci v. DeStefano,
557 U.S. 557, 586 (2009); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144,
158–59
(1970)).
Summary
judgment
is
proper
when
the
movant
demonstrates, through “particular parts of materials in the record,
including depositions, documents, electronically stored information,
affidavits
or
declarations,
stipulations
.
.
.
admissions,
interrogatory answers, or other materials,” that “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”
Fed.R.Civ.P. 56(a), (c)(1)(A).
A “material fact” is one that might affect the outcome of a
party’s case.
Anderson, 477 U.S. at 248; see also JKC Holding Co. v.
Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001)
(citing Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001)).
Whether a fact is considered to be “material” is determined by the
substantive law, and “[o]nly disputes over facts that might affect
the outcome of the suit under the governing law will properly
preclude the entry of summary judgment.”
accord Hooven-Lewis, 249 F.3d at 265.
Anderson, 477 U.S. at 248;
A “genuine” dispute concerning
a “material” fact arises when the evidence is sufficient to allow a
7
reasonable jury to return a verdict in the nonmoving party’s favor.
Anderson, 477 U.S. at 248.
B.
Analysis
The Baes argue that Sections 402, 2602(vii), and 2605 are
unenforceable under Missouri law because they are penalty provisions
intended to compel performance.5
The Court will first analyze
Sections 402 and 2602(vii), and then turn to Section 2605.
1.
In
Sections 402 and 2602(vii)
Missouri,
“liquidated
damages
clauses
are
valid
and
enforceable; penalty clauses are not.” Grand Bissell Towers, Inc. v.
Joan Gagnon Enters., Inc., 657 S.W.2d 378, 379 (Mo.Ct.App. 1983).
“A
penalty provision specifies a punishment for default,” whereas a
liquidated damages provision provides “a measure of compensation
that, at the time of contracting, the parties agree will represent
damages in the event of a breach.”
City of Richmond Heights v.
Waite, 280 S.W.3d 770, 776 (Mo.Ct.App. 2009) (citation omitted).
To
be a liquidated damages provision, a damages provision must satisfy
two conditions: “(1) the amount fixed as damages is a reasonable
forecast for the harm caused by the breach, and (2) the harm that is
caused is of a kind that is difficult to accurately estimate.”
DynaSteel Corp. v. Black & Veatch Corp., 698 F.Supp.2d 1170, 1179
(W.D.Mo. 2010) (citation omitted).
5
The parties agree that Missouri law applies.
8
For a damages provision to satisfy the first condition, the
damages “must not be unreasonably disproportionate to the amount of
harm anticipated when the contract was made.”
Burst v. R.W. Beal &
Co., 771 S.W.2d 87, 90 (Mo.Ct.App. 1989) (citing Grand Bissell
Towers, Inc. v. Joan Gagnon Enters, Inc., 657 S.W.2d 378, 379
(Mo.Ct.App. 1983)).
The amount of damages fixed “is reasonable to
the extent that it approximates the loss anticipated at the time of
the making of the contract, even though it may not approximate the
actual loss.”
Star Dev. Corp. v. Urgent Care Assocs., Inc., 429
S.W.3d 487, 493 (Mo.Ct.App. 2014) (quoting Paragon Grp., Inc. v.
Ampleman, 878 S.W.2d 878, 881 (Mo.Ct.App. 1994)) (internal quotation
marks omitted).
Also, “[t]he more difficult it is to forecast the
amount of damages, the less proof there need be to show that the
liquidated amount is a reasonable estimate of actual damages.”
Id.
(citation and internal quotation marks omitted).
Because the Baes challenge only the first condition, the Court
will focus its analysis there.
The Court observes that the Baes do
not cite to any portions of the record to attempt to show that the
damages that Sections 402 and 2602(vii) contemplate are unreasonably
disproportionate to the amount of harm anticipated when the parties
executed the Lease.6
6
Instead, the Baes rely exclusively on a sole
In their brief, the only portion of the record to which the
Baes refer is a snippet from the deposition of KC Live’s corporate
designee, Robert Fowler.
Fowler testifies that KC Live enforces
damages provisions on a case-by-case basis. (See Fowler Dep., Sept.
26, 2016, 34:14–35:2, ECF No. 67-3). The Baes use this testimony to
9
case from the Missouri Court of Appeals: Kansas City Live Block 139
Retail, LLC v. Fran’s K.C. Ltd, 504 S.W.3d 725 (Mo.Ct.App. 2016).
In Fran’s, KC Live sued another District tenant for breach of
its lease agreement.
504 S.W.3d at 729.
Following a bench trial,
the trial court awarded liquidated damages under a lease provision
that mirrors the language of Section 2602(vii).7 See id.
On appeal,
the tenants challenged the award of liquidated damages, arguing that
Section 2602(vii) is unenforceable as a matter of law. Id. at 731.
To be sure, the Missouri Court of Appeals concluded that Section
2602(vii) was unenforceable.
Id. at 733.
That conclusion, however,
was based on the testimony that the parties presented during the
trial.
See id.
Indeed, the court highlighted that the defendant
landlord provided “no testimony” to indicate that the treble damages
that Section 2602(vii) fixes are “in fact proportionate to the
anticipated harm.”
Id.
Here -- unlike in Fran’s -- KC Live provides testimony that is
directly relevant to whether the liquidated damages that Section 402
argue that they are entitled to judgment as a matter of law that
Section 2602(vii) is a penalty provision intended to compel
performance.
Yet the Baes cite no legal authority for the
proposition that as a matter of law, a damages provision is a penalty
provision whenever a contracting party enforces it on a case-by-case
basis.
Thus, though it appears undisputed that KC Live enforces
damages provisions on a case-by-case basis, the Court cannot conclude
that fact is material. See Anderson, 477 U.S. at 248(explaining that
a material fact is one “that might affect the outcome of the suit
under the governing law”).
And for the Baes to be entitled to
summary judgment, they must demonstrate that there is no genuine
dispute of material fact. Fed.R.Civ.P. 56(a).
7
The Court, therefore, will also refer to the damages provision
10
and 2602(vii) fix are a reasonable forecast of the harm KC Live would
suffer as a result of the Baes’ purported breaches of the Lease.
KC
Live presents a detailed affidavit from Robert Fowler, who is
“responsible for leasing matters for KC Live.”
(Fowler Aff. ¶ 3).
Fowler explains that within the District, the financial success
of
the
tenants’
businesses
is
interrelated
--
“[o]ne
tenant’s
decision to open-late, close early or not open at all affects the
financial success of all other tenants.”
(Id. ¶ 22).
Indeed, when
one tenant -- like the Baes -- violates the obligations of its lease
with KC Live, “whether that’s by opening late, not being open during
the day when it’s supposed to be . . . , or closing altogether, that
has an undeniably detrimental impact on the tenant’s gross sales and
the gross sales of other tenants in the shopping center.”
(Id.).
This detrimental financial impact ultimately affects KC Live because
many of the commercial leases in the District contain “percentage
rent provisions.”
(Id. ¶ 21).
Under these provisions, “[i]f a
tenant achieves a certain amount of gross sales in a given year, they
will pay a percentage of the gross sales to the landlord.”
(Id.
¶ 20).
Fowler further explains that when a tenant elects to abandon a
leased property before the end of the lease term and without notice
to KC Live -- just as the Baes purportedly did here -- it also has a
negative financial impact on KC Live for at least two reasons.
in Fran’s as “Section 2602(vii).”
11
First, “[i]t is much more difficult to lease space in a shopping
center that is unoccupied or vacant.”
(Id. ¶ 23).
Second, “if [KC
Live] is successful in re-leasing the space it is reasonably likely
that [KC Live] will receive a lesser amount of rent than it could
have obtained if the shopping center were fully occupied.”
(Id.).
Having reviewed Fowler’s testimony, the Court must now determine
whether based on this testimony, a reasonable jury could find that
the liquidated damages that Section 402 and 2602(vii) fix are a
reasonable forecast of the harm KC Live would suffer as a result of
the
Baes’
purported
breaches
of
the
Lease.
In
making
this
determination, the Court finds another case in this Court to be
instructive: Bistro of Kansas City, LLC v. Kansas City Live Block 125
Retail, LLC, No. ELH-10-2726 (D.Md. judgment entered Nov. 26, 2013).
In Bistro, KC Live sued another District tenant, Bistro of
Kansas City, MO., LLC (“Bistro”), for breach of the parties’ lease
agreement.
of
Decision
Following a bench trial, this Court issued a Memorandum
in
which
conclusions of law.
it
set
forth
its
findings
of
fact
and
Bistro of Kansas City, LLC v. Kansas City Live
Block 125 Retail, LLC, No. ELH-10-2726, 2013 WL 4431292 (D.Md. Aug.
16, 2013).
Bistro argued that two damages provisions -- which were
also numbered sections 402 and 2602(vii) and contained language
nearly identical to Sections 402 and 2602(vii) -- were unenforceable
penalty clauses.
Id. at *35.
The first provision that Bistro
challenged mirrors Section 402, except that it sets damages at $500
12
per day, as opposed to $1,833 per day.
Id. at *17.8
The second
provision mirrors the language of Section 2602(vii), except that it
provides for double, as compared to treble, damages.9
Id. at *33.
During trial, there was testimony that within the District, each
tenant’s business is influenced by its neighbors’ businesses.
*37.
Id. at
A Bistro representative testified that the lack of retail and a
delay
in
the
business.
Id.
opening
of
theaters
impacted
Bistro’s
restaurant
There was also testimony that after Bistro left the
commercial space it had leased in the District, KC Live relet the
space for less rent than Bistro had agreed to pay.
Id.
This Court
concluded that based on this testimony, Bistro Sections 402 and
2602(vii) were enforceable as a matter of law.
Here,
likewise,
Fowler
states
in
his
Id.
affidavit
that
the
financial success of the tenants’ business is interrelated and that
if and when KC Live relets the commercial space that the Baes
occupied, it is reasonably likely that KC Live will receive a lesser
amount of rent than the Baes were paying.
(Fowler Aff. ¶¶ 22, 23).
Considering the similarity between the testimony in Bistro and the
testimony that Fowler provides in his affidavit, the Court concludes
that KC Live generates a genuine dispute regarding whether the
damages
8
that
Sections
402
and
2602(vii)
fix
are
reasonably
The Court will refer to this provision as “Bistro Section
402.”
9
The Court will refer to this provision as “Bistro Section
2602(vii).”
13
proportionate to the amount of harm the parties anticipated when they
executed the Lease.
Although Sections 402 and 2602(vii) fix liquidated damages that
are greater than those in Bistro, the Court finds it significant that
the parties agreed to both provisions.
Bistro,
in
Missouri,
“courts
look
As this Court explained in
with
candor
on
provisions
deliberately entered into between parties, and do not look with
disfavor upon liquidated damage stipulations.”
2013 WL 4431292, at
*36 (quoting Germany v. Nelson, 677 S.W.2d 386, 388 (Mo.Ct.App.
1984)) (internal quotation marks omitted).
The Court underscores,
furthermore, that it is undisputed that the Baes “are sophisticated
business owners, with multiple decades of experience owning, opening,
and
operating
restaurants,”
(Fowler
Aff.
¶
5),
and
they
were
“represented by legal counsel” and “freely negotiated and agreed to”
the Lease and the 2011 Amendment, (id. ¶ 6).
See DynaSteel, 698
F.Supp.2d at 1179 (concluding that 25% markup on direct backcharge
costs was a reasonable liquidated damages clause because, among other
reasons, “[the plaintiff] is a sophisticated business that freely
negotiated its contract with [the defendant] and agreed to the 25%
markup”).
Because KC Live generates a genuine dispute of material fact,
the
Court
will
deny
the
Baes’
Motion
2602(vii).
14
as
to
Sections
402
and
2.
Section 2605
The Court must also determine whether the Baes are entitled to
judgment as a matter of law that Section 2605 is an unenforceable
penalty provision, as opposed to an enforceable liquidated damages
provision.
Again, to be an enforceable liquidated damages provision,
a late charge provision must satisfy two conditions: “(1) the amount
fixed as damages is a reasonable forecast for the harm caused by the
breach, and (2) the harm that is caused is of a kind that is
difficult to accurately estimate.”
The
Baes
argue
that
Section
2605
Id. at 1179 (citation omitted).
does
not
satisfy
the
first
condition, contending specifically that Section 2605 fixes damages
“that would be excess compensation for any actual harm suffered.”
(ECF No. 67-1 at 8).
As with their challenge to Sections 402 and
2602(vii), the Baes do not cite to any materials in the record,
instead relying chiefly on Fran’s.
There is no question that in Fran’s, the Missouri Court of
Appeals concluded that a late charge provision identical to Section
2605 was an unenforceable penalty provision.
The Court, however,
does not find Fran’s persuasive.
The Fran’s court highlighted that “KC Live failed to show that
it suffered any substantial damages from Fran’s default not already
compensated by other contractual provisions.”
735.
Fran’s, 504 S.W.3d at
In Fran’s, however, there was testimony that the lease’s
administrative fee, calculated as 20% of the common area maintenance
15
costs, was “a back-of-house overhead more specifically related to the
amount of accounting time that is necessary to monitor and put
together ledgers, deal with organization coding, etc.”
Fran’s
court
concluded
that
based
on
this
Id.
The
testimony,
any
“administrative fees incurred in relation to the late payments would
appear to have been compensated, in whole or in part, by the 20%
administrative fee.”
Id.
Here, to be sure, the Lease also provides for an administrative
fee of 20% of Common Area Maintenance Costs.
(See Lease § 1003).
But the limited portions of the record that the Court has reviewed
are devoid of any testimony regarding what the parties intended the
20% to cover.
In the absence of such testimony, the Court cannot
conclude, as the Fran’s Court did, that the parties intended the 20%
administrative fee to cover the expenses associated with tracking and
collecting late Rent payments.
The Fran’s court also found it significant that the lease
authorized KC Live to recover interest on any unpaid rent and the
attorneys’ fees associated with actions to collect unpaid rent.
Fran’s, 504 S.W.3d at 735.
See
The court concluded that “[t]hese
contractual remedies would also serve to compensate KC Live for any
harms it suffered as a result of rental delinquencies.”
Id.
Here,
too, the Lease permits KC Live to collect interest and attorneys’
fees.
(Lease §§ 311, 2701).
But in Fran’s, the court’s conclusion
that interest and attorneys’ fees would adequately compensate KC Live
16
for any harm arising from late rent was based on the Court’s
acknowledgment of the minimal harm that KC Live actually suffered.
See Fran’s, 504 S.W.3d at 735.
The Court noted that the only
testimony as to KC Live’s actual harm resulting from Fran’s failure
to pay rent was that KC Live had to take two administrative actions:
(1) “sending eight default letters;” and (2) “generating e-mails
attached to a number of the letters from KC Live to [Fran’s]
inquiring about the status of the late payments.”
Id. (internal
quotation marks omitted).
Here, the harm KC Live has sustained far exceeds the harm KC
Live sustained in Fran’s.
It is undisputed that as a direct
consequence of the Baes’ “constant and repeated defaults,” “[t]here
have been numerous -- even constant -- efforts by accounting, legal
leasing, and other KC Live personnel, including multiple in-person
meetings, over the years.”
(Fowler Aff. ¶ 24).
Because there is
evidence of more extensive harm in this case, the Court cannot
conclude, as the Fran’s Court did, that KC Live fails to show that it
suffered damages not already compensated by other Lease provisions.
Instead of Fran’s, the Court finds Star Development, supra,
another case from the Missouri Court of Appeals, to be persuasive.
There, the Court considered whether a late charge provision imposing
late charges of 15% of delinquent rent was an enforceable liquidated
damages provisions.
Star Dev., 429 S.W.3d at 491.
The plaintiff
tenant argued, like the Baes do here, that the late charge provision
17
did not satisfy the first condition of an enforceable liquidated
damages provision.
The plaintiff contended that the late charge
provision “was punitive in its operation because it was not a
reasonable forecast of the damages [the defendant] would incur upon
[the plaintiff’s] late remittances.”
The
court
disagreed
with
the
Id. at 492.
plaintiff,
highlighting
that
“[w]hen the lease was made, the parties did not know how long [the
plaintiff] would be past due on any late rental payments or the
extent of the administrative efforts that [the defendant’s] employees
would be required to
payments.”
expend to collect [the plaintiff’s] late
Id. at 493.
The court reasoned that “[d]epending upon
those variables, [the plaintiff’s] actual harm could be less than, or
significantly more than, the 15% late charge.”
concluded
that
“[g]iven
the
difficulty
Id.
of
The Court then
estimating
[the
defendant’s] actual harm due to these unknown variables at the time
the lease was made, the 15% late charge to which [the plaintiff]
expressly agreed was a reasonable forecast of damages to compensate
[the defendant] for its administrative efforts.”
Here,
not
only
did
the
Baes,
like
the
Id.
plaintiff
in
Star
Development, expressly agree to the terms of Section 2605, but also
Section 2605 imposes late charges of 5% -- 10% less than the late
charge provision that the Star Development court found enforceable.
And, what is more, just like in Star Development, there is no
evidence that the parties knew how long the Baes would be past due on
18
any late Rent payments or the extent of the administrative efforts KC
Live’s employees would be forced to undertake to attempt to collect
the delinquent Rent payments.
In the absence of such evidence, the
Court concludes that the Baes are not entitled to a judgment as a
matter of law that Section 2605 is unenforceable.
The Court,
therefore, will deny the Baes’ Motion as to that provision.10
III. CONCLUSION
For the foregoing reasons, the Court will deny the Baes’ Motion
for Partial Summary Judgment (ECF No. 67).
A separate Order follows.
Entered this 20th day of June, 2017
/s/
____________________________
George L. Russell, III
United States District Judge
10
Because the Court concludes that the Baes are not entitled to
judgment as a matter of law that Sections 402, 2602(vii), and 2605
are unenforceable, to the extent that the Baes argue that the damages
for late opening and the late charges for unpaid Rent must be
eliminated from the Stipulated Amount Owed, the Court will also deny
the Baes’ Motion.
19
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