REXAM BEVERAGE CAN CO. v. BOLGER (August 24, 2010)
Almost 50 years ago, David Bolger constructed a warehouse near Rockford, Illinois and leased it to Rexam Beverage Can Company. In 2005, Rexam attempted to renew the lease for another five-year term, but failed to give the requisite notice. Bolger advised Rexam that it would have to vacate the premises at the expiration of the lease in March of 2006. Bolger also requested that certain repairs be made. Rexam did not vacate the premises. Instead, it filed a declaratory judgment action. It also continued to pay all utilities and rent, although Bolger returned the rent checks. Eventually, Rexam found a new home, made some repairs to the Rockford warehouse, and returned possession to Bolger at the end of August, 2007. Although Rexam made significant repairs to the warehouse, it did not replace the roof as Bolger had requested. The roof repair estimate was approximately $400,000. Bolger sold the property within several months without replacing the roof. Shortly before Rexam vacated the warehouse, Judge Ashman (N.D. Ill.) ruled on the declaratory judgment action. He concluded that Rexam did not meet the lease's renewal notice requirements and that its continued occupation of the warehouse was "willful" under Illinois' Holdover Statute. After a bench trial, the court found for Bolger and awarded $1.1 million for the holdover, $400,000 for the roof replacement, $20,000 for other repairs, and over $800,000 in attorneys' fees. Rexam appeals.
In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed in part and vacated and remanded in part. The Court first addressed Rexam's liability for roof repairs under the lease. Under Illinois law, the lease is like any other contract and, if unambiguous, will be applied according to its terms. Using that analysis, the Court concluded that the lease language ("Lessor shall have no obligation with respect to the maintenance and repair . . .” and "Lessee shall be solely responsible . . . for keeping all of the [buildings] in good condition, order and repair, including all structural and extraordinary changes . . .") was unambiguous and placed the contractual burden of roof repairs on Rexam. With respect to damages for the roof, which the district court fixed at the estimated repair costs, the Court noted that Illinois law limits damages in such a situation to the diminution in property value. If the repair cost exceeds diminution in value, only the latter is awarded. The district court was presented with conflicting evidence on this issue and determined that the two measurements of damages were equal. The Court found no clear error. The Court turned to the award of damages under the Holdover Statute. It first concluded that there was no clear error in the district court's factual finding that the holdover was willful. Although the statute does not define willful, the Court relied on an intermediate Illinois case that rejected a "bad faith" test and instead adopted a test that excuses a tenant who remains in possession for a "colorably justifiable" reason. The Court agreed with the district court's conclusion that Rexam's holdover was not justifiable. With respect to damages, the statute assesses a penalty of "double the yearly value of the lands." The district court based its award on expert testimony establishing the monthly gross rental rate of the warehouse. The Court concluded that the use of the gross rental rate to measure damages was incorrect. Relying on the plain language of the statute, the intent of the legislation, and the dictionary definitions of "annual value" and "land," the Court concluded that holdover damages should be based on net rental value instead of gross rental value. The Court remanded for a determination of net rental value. Finally, the Court turned to the award of attorneys’ fees. Litigants in Illinois are generally responsible for their own attorneys' fees unless a statute or contract provides otherwise. The Court agreed with the district court's conclusion that the lease in question provided a basis for Bolger to recover fees associated with the repair issues but not the holdover issue. Fees for the holdover issue were not covered because the fee provision was limited to claims arising during the lease term. By its very nature, the holdover claim did not arise during of the lease term. The Court next rejected Rexam's argument that Bolger should be limited to recovering fees on those repair claims on which he was successful. The language of the lease's fee provision did not require success. With respect to the district court's efforts to disentangle fees associated with the repair issues and the holdover issues, the Court found no abuse of discretion although it did not endorse the district court's rather superficial approach.