BTR Hampstead, LLC v. Source Interlink Distribution, LLC

⁵⁴¹ WOODWARD, J. Appellee, Source Interlink Distribution, LLC (“Source Interlink”), leased warehouse and office space from appellant, BTR Hampstead, LLC (“BTR”). After a dispute arose between the parties, occasioned by the flooding of the space adjacent to Source Interlink’s premises, Source Interlink filed a complaint on September 28, 2007, in the Circuit Court for Carroll County, seeking, inter alia, (1) a declaration that its Agreement of Lease (“Lease”) with BTR was terminated, and (2) an award of money damages. On December 3, 2007, BTR filed a counterclaim against Source Interlink for “rent due and owing,” arguing that Source Interlink was in breach of the Lease. After a three-day trial, on March 24, 2009, the circuit court entered judgment that the Lease was terminated effective September 28, 2007, and awarded Source Interlink $149,467.04 in damages.

The court denied all relief to BTR on its counterclaim. On appeal, BTR presents three questions for our review, which we have expanded into four questions: I. Did the circuit court err by finding that the actions of BTR relating to Source Interlink’s premises after the flood in May of 2007 constituted an actual eviction?

II

Did the circuit court err by finding that Source Interlink did not waive its right to claim an eviction and to declare the Lease terminated?

III

Did the circuit court err by ruling that the terms of the Lease did not permit the actions of BTR relating to Source Interlink’s premises after the flood in May of 2007?

IV

Did Source Interlink prove damages to a reasonable certainty? For the reasons set forth herein, we shall affirm the judgment of the circuit court. BACKGROUND The facts of the instant case are not in dispute. We shall adopt and incorporate substantial portions of the factual histo ⁵⁴² ry as set forth by the Circuit Court for Carroll County in its Memorandum Opinion, dated March 23, 2009: 1.

BTR ... is in the business of the ownership and leasing of real estate and owns the land and improvements at 626 Hanover Pike, Hampstead, Maryland (“Hampstead Facility”). The total square footage in the Hampstead Facility is approximately 800,000 square feet. 2. BTR is the Landlord and Source Interlink ... is the Tenant under an Agreement of Lease (“Lease”) at the Hampstead Facility and leased approximately 126,000 square feet of space. 3. Fidelitone Logistics (“Fidelitone”), another tenant in the Hampstead Facility during the relevant time period, leased approximately 185,000 square feet of space adjacent to Source Interlink’s premises. 6.

In March 2006, Source Interlink acquired Anderson News, LLC (“Anderson”), which included acquisition of the Lease at the Hampstead Facility. 15. The Lease at issue in this case was first executed in November 1999 and is for approximately 126,786 square feet which is comprised of 114,891 sq. ft. of warehouse space and 11,895 sq. ft. of office space. 16. The Lease will expire by its terms on January 31, 2010. 33. After acquiring the [Ljease from Anderson News in March 2006, Source Interlink continued to use the space as a distribution center for approximately five months, until late August or early September of 2006. 34.

In approximately September 2006, Source Interlink began decommissioning the leased premises as a distribution center and moving that portion of Source Interlink’s operations to a distribution center in Lancaster, P[ennsylva-nia]. The decommissioning process took about two months. ⁵⁴³ 35. During the fall of 2006, Source Interlink caused the leased premises to “go dark,” which is a term used by Source Interlink to mean that the space was no longer being actively used for the purposes of that Facility, but Source Interlink continued to honor and fulfill its lease obligations with respect to the facility. Source Interlink continued to pay the rent and other related charges to BTR after the facility was decommissioned. 38.

When Source Interlink decommissions a facility, it hires a third party or someone within the company to be responsible for periodic inspections of the facility to ensure that safety and maintenance concerns are addressed on a regular basis. 39. Robert Schuler (“Schuler”), Source Interiink’s National Maintenance Manager, hired Harold Raines (“Raines”) to periodically inspect the leased premises after it was decommissioned. 40. Raines began visiting Source Interiink’s leased premises to check on it around the middle of October 2006. 41. Between October 2007 and April 2007, Raines visited Source Interiink’s leased premises three days a week because those months were cold weather months.

During warm weather months, Raines visited once a week. 44. Source Interlink attempted to sublease the premises in the fall of 2006 after the premises had been decommissioned. 45. The subleasing efforts were coordinated by Mohr Partners, Inc., who in turn hired a local real estate [broker] to conduct the marketing of the leased premises for sublease. 46. Source Interlink requested Mohr Partners to hire a new local real estate broker, Mackenzie Commercial Real Estate Services, LLC, to market the leased premises for sublease.

Daniel A[.] Hudak (“Hudak”), Senior Vice President/Principal of Mackenzie, was contacted by Mohr Partners to assist the resident local broker.... ⁵⁴⁴ 47. In early to mid-October 2007, [Mohr Partners] called Hudak and instructed him to stop marketing the warehouse space for sublease as of October 15, 2007, until further notice because of a legal dispute. Hudak complied with this instruction. 86. Early in the morning on Saturday morning of Memorial Day weekend of 2007, the closed-loop water pipe system burst at a point located in the ceiling of Fidelitone’s space at the Hampstead Facility. 87. [Anna Dziewanowski, the Senior Property Manager at BTR] received a call ... early in the morning that required her to come to the Hampstead Facility. [Michael] Clark[, a member of BTR] received a call from Dziewanowski in the early morning of Saturday, May 26, 2007 advising him of the leak and flooding.

Fidelitone’s warehouse manager, Richard Rae (“Rae”), also showed up on Saturday morning. 96. Shortly after BTR and Fidelitone representatives arrived at the Hampstead Facility on the day of the flood, there was a meeting among Clark, Rae, and two members of BTR Management’s property management staff. 97. During or shortly after this meeting, Clark, on behalf of BTR, made the decision permitting Fidelitone to move its products into the Source Interlink premises. 98. BTR’s decision was oral and never put in writing.

There is no written documentation of the dealings, arrangement and communication between BTR and Fidelitone about Fidelitone’s use of the Source Interlink space. 99. BTR considered its decision to permit Fidelitone to occupy the Source Interlink space to be an emergency decision. 100. The exigency that caused BTR to permit Fidelitone to put its product in the Source Interlink space ended no later than June 15, 2007. ⁵⁴⁵ 101. A hole was cut in the demising wall between the Fidelitone space and the Source Interlink space on the day of the flood.

Fidelitone began using forklifts to move [its] product into the Source Interlink space immediately. 105. Fidelitone was able to start operating again on May 29, 2007, the Tuesday after Memorial Day Weekend. There was no interruption in Fidelitone’s business operations as a result of the flooding of its space. 106. BTR never asked Source Interlink for its consent to allow Fidelitone to use Source Interlink’s premises. 107.

Source Interlink never gave permission or authorization to BTR to allow Fidelitone to enter Source Interlink’s leased premises, use the premises, or conduct operations there for six months. Raines never gave permission on behalf of Source Interlink for BTR to put Fidelitone into Source Interlink’s space. 111. After Raines observed Fidelitone’s use and occupancy of Source Interlink’s leased premises for the first time, he called Schuler, his contact at Source Interlink, to inform him. Schuler was not aware of what had occurred at the Hampstead Facility until Raines informed him. 112. [Thomas] Ramage[, the National Property Manager of Source Interlink], did not find out about the flood and Fidelitone moving into Source Interlink’s space until a telephone conversation he had -with [Jeffrey] Rodgers[, BTR management employee who handled various accounting matters] on or about June 13, 2007.... 113.

The only written notification BTR gave to Source Interlink is a letter dated June 8, 2007, from Rodgers to Ramage. Ramage did not receive the letter until June 18, 2007. Rodgers’ letter stated that there had been a water pipe leak in the Fidelitone space, that BTR had allowed Fidelitone to “temporarily” move some product into Source Interlink’s space while Fidelitone’s space was restored, and ⁵⁴⁶ that BTR would be moving Fidelitone’s product back as soon as possible. 114. BTR did not provide Source Interlink with any information as to the nature of Fidelitone’s usage of Source Interlink’s space. 115.

Fidelitone moved the majority of its product (about sixty percent) that was on the floor at the time of the flood into Source Interlink’s space and eventually moved everything on racks into Source Interlink’s space. 118. Fidelitone used approximately eighty percent of Source Interlink’s space for most of the time it was using and occupying Source Interlink’s space. The average number of pallets of product Fidelitone kept in the Source Interlink space between Memorial Day and the end of October was approximately 1,000 to 1,200 pallets. 119. Fidelitone used the bay doors in Source Interlink’s space for unloading trucks and receiving product.

This was an improved operating situation for Fidelitone because the Source Interlink space provided Fidelitone an additional number of bay doors. 120. At any given time, approximately ten Fidelitone employees would be working in the Source Interlink space. 121. Clark[, from BTR] testified that Fidelitone used and occupied 115,000 square feet of Source Interlink’s space, constituting substantially all of Source Interlink’s warehouse space. 124. On July 2, 2007, Ramage went into the Source Interlink space and observed that roughly one-hundred thousand square feet of the warehouse space was full of Fidelitone product.

He also observed that there were a number of forklifts moving back and forth and that delivery trucks were being loaded and offloaded from the bay doors of the leased premises. He also observed that there was a large hole in the demising wall between the leased premises and Fidelitone’s space. Ramage had trouble opening the access ⁵⁴⁷ doors to the Source Interlink space because Fidelitone had put pallets of inventory stacked six to eight feet tall. 125. Ramage also observed during his visit on July 2, 2007, that Fidelitone was using Source Interlink battery chargers to charge Fidelitone’s forklifts. 126.

Raines observed during his visits that the amount of Fidelitone’s inventory being stored in Source Interlink’s leased premises increased and that Fidelitone’s use of the space appeared to be a “full operation.” Raines observed that all the bay doors were open, trucks were backed up to the bay doors for loading and forklifts were moving equipment around. 127. Fidelitone received the benefit of use of the heating and electric utility in Source Interlink’s leased premises. 128. BTR admits that Fidelitone acted like a tenant in Source Interlink’s space. BTR knew that Fidelitone was storing product, operating forklifts, and utilizing the Source Interlink loading/unloading docks. 130.

Ramage inspected the Source Interlink space at the Hampstead Facility on July 2, 2007. Ramage personally observed Fidelitone’s usage of the leased premises and took photographs during his July 2, 2007, inspection. Raines met Ramage at the Hampstead Facility on July 2, 2007. No BTR representatives were present during Ramage’s July 2 inspection.

Ramage immediately telephoned [David] Buck[, Source Interlink’s Vice President for Facilities] to inform him. 134. A meeting was held between Ramage and Clark at the Hampstead Facility on July 17, 2007. Ramage told Clark that it had taken BTR two weeks to notify him that Fidelitone had been granted access to use the Source Interlink space. Ramage told Clark how “shocked” he had been to see on his July 2, 2007, inspection that Fidelitone was actually conducting operations in the Source Interlink space. ⁵⁴⁸ 135.

Ramage also told Clark that Source Interlink had not given permission to either BTR or Fidelitone for Fidelitone to use and occupy the leased premises and that Ramage believed BTR to be in breach of the lease. 136. Ramage told Clark that Source Interlink had been told that Fidelitone’s use and occupancy of the leased premises would only last for a few days or a week, but that it in fact had already lasted more than a month. 141. In total, the cleanup and restoration of Fidelitone’s space took approximately two months, during June and July of 2007. 142. Even after the July 17, 2007, meeting -with Ramage, BTR continued to allow Fidelitone to use and occupy Source Interlink’s leased premises. 143.

No one at BTR told Fidelitone to stop loading and unloading and otherwise to stop operating out of the Source Interlink space. BTR did not give Fidelitone a deadline to get Fidelitone’s product out of the Source Interlink space. 147. Fidelitone operated in Source Interlink’s leased premises for six months. 148. On November 15, 2007, Raines observed Fidelitone still using the Source Interlink space. 149.

Fidelitone was not completely out of Source Interlink’s space until the last weekend of November 2007. 150. BTR did not abate Source Interlink’s rent, [common area maintenance (“CAM”) charges], taxes or insurance during the period June, July, August, and September of 2007. 152. Fidelitone was never asked by BTR to compensate Source Interlink for Fidelitone’s use of the Source Interlink space. 153. Source Interlink continued to pay rent and other related charges to BTR for the months of June, July, ⁵⁴⁹ August, and September 2007 while Fidelitone was using and occupying Source Interlink’s leased premises. 154.

BTR suffered no loss or rental income as a result of the flood because, in addition to charging and collecting from Source Interlink, Fidelitone also continued to pay rent on its leased premises during the time Fidelitone was using Source Interlink’s space. 155. In August 2007, Ramage sent two letters — August 10 and August 13, 2007 — in an effort to generate a response from [BTR] that would lead to an end to Fidelitone’s use of the Source Interlink premises. 157. No one from BTR ever responded in any fashion to Ramage’s August 10, 2007, letter. 159. No one from BTR ever responded in any fashion to Ramage’s August 13, 2007, letter. 161.

No claim was submitted to BTR’s insurer for any loss of business or interruption suffered by Fidelitone. 162. The claim submitted by BTR to its insurer because of the flood included two months of rent on the Source Interlink’s space. The total amount paid by BTR’s insurer to BTR for the rent portion of the claim was $76,000. 164. BTR did not contact Source Interlink to inform Source Interlink about any communications with the insurance company.

Source Interlink was never contacted by any insurance agency regarding reimbursement. 165. BTR never paid any insurance monies to Source Interlink. 169. BTR did not tell Fidelitone to move out of Source Interlink’s space until after [the] lawsuit was filed prior to filing suit. ⁵⁵⁰ 170. Source Interlink instructed Raines to continue to check the facility periodically after the lawsuit was filed for the purposes of safety and security.

Source Interlink still has Raines visit the space on a weekly basis continuing his inspections and check of the heat. Source Interlink had Raines clean the filters in the heaters, check on the fire extinguishers and also contract with a contractor in January and February, 2008 to service the heaters in the space. 171. As a result of Raines[ ] checking the facility for any problems, he discovered in March 2008 a gas leak which was repaired in March 2008. 172. Since the conclusion of the second day of trial in this case in August 2008, Raines has made periodic visits to the premises to check that the premises are safe, secure, and free of vandalism and to set the heat at 50 degrees to make sure the pipes do not freeze. 173.

In addition to continuing to insure the property, retaining keys to the property and accessing the property, Source Interlink left a large piece of equipment stored at the facility which it has unsuccessfully attempted to sell since it decommissioned the space. The costs to remove this equipment, which are separate from the repairs to the building, involve use of heavy equipment at a cost estimate of $8,500. 174. Source Interlink has never offered or attempted to return the keys to the property. 175. The total amount of base rent, CAM charges, insurance, and real estate tax payments that Source Interlink paid to BTR during the months of June, July, August, and September of 2007 was $149,466.04.

The Dispute On September 28, 2007, Source Interlink filed a complaint against BTR for, inter alia, a declaration that the Lease was terminated and for an award of money damages. Sometime in October of 2007, after it filed the complaint, Source Interlink called Hudak and instructed him to stop marketing the ware ⁵⁵¹ house space for sublease because of the legal dispute. Source Interlink, however, continued to insure the property, to inspect and access the property for the purposes of safety and security, and retained the keys to the property. Source Interlink also used the property to store its air system, a large piece of equipment mounted on the roof, with an estimated removal cost of $8,500.

On December 3, 2007, BTR answered the complaint, listing the affirmative defenses of accord and satisfaction, contributory negligence, estoppel, laches, release, and waiver. On the same day, BTR filed a counterclaim alleging that Source Interlink “ha[d] not paid the rent due and owing under the lease for the months of October and November and ha[d] not paid the rent to BTR for December,” and thus argued that Source Interlink was in breach of the Lease. Source Interlink answered the counterclaim on January 3, 2008. Trial was held on August 25, 28, and December 19, 2008.

On March 24, 2009, the circuit court entered Judgment, which stated, in relevant part: ORDERED, that the Court declares the Lease between BTR [] and Source Interlink [] is terminated effective September 28, 2007; and it is further ORDERED, that judgment is entered in favor of Source Interlink [ ] against BTR [ ] in the amount of $149,467.04;[ 1 ] and it is further ORDERED, that all other relief requested by either party be and the same is hereby DENIED. ⁵⁵² BTR timely noted an appeal from the judgment of the circuit court. Additional facts will be set forth as needed to resolve the questions presented. DISCUSSION I. Did the circuit court err by finding that the actions of BTR relating to Source Interlink’s premises after the flood in May of 2007 constituted an actual eviction? In its thorough and well-reasoned Memorandum Opinion, the circuit court first ruled that, “[b]y moving Fidelitone into space rented by Source Interlink, BTR breached the covenant of quiet enjoyment in the Lease.” (Emphasis omitted).

The court explained: BTR contends that it did not interfere with Source Interlink’s use of the premises, only with its rights to use same, while Source Interlink contends the interference with the right to use the premises was a material breach of the covenant of quiet enjoyment. None of the cases cited by the parties involve holdings that address the difference between the legal effect of depriving a tenant of actual use rather than a right to use. The Restatement, however, makes clear that it is interference with a permissible use that is necessary: Except to the extent the parties to a lease validly agree otherwise, there is a breach of the landlord’s obligations if, during the period the tenant is entitled to possession of the leased property, the landlord, or someone whose conduct is attributable to him, interferes with a permissible use of the leased property by the tenant. A “permissible use” is “any use ... that the tenant is authorized to make.” By giving Source Interlink’s space to Fidelitone, BTR interfered with every use Source Interlink was authorized to make.

(Emphasis added) (citations omitted) (italicization and alteration in original). ⁵⁵³ The circuit court further ruled that, “[b]y moving Fidelitone into space rented by Source [IJnterlink, BTR evicted Source Interlink.” (Emphasis omitted). The court reasoned: In addition to breaching the covenant of quiet enjoyment, BTR’s acts totally interfered with Source Interlink’s right to use and enjoy the premises, amounting to an eviction. This entitled Source Interlink to terminate the lease. Here, BTR retook possession of the premises without the consent of or notice to Source Interlink.

Although BTR knew that Source Interlink objected to Fidelitone being in its premises, BTR did nothing to move Fidelitone out until after this suit was filed. Further, BTR continued to send regular rent bills to Source Interlink, and refused Source Interlink’s requests for information as to BTR’s intentions. Although BTR contends that its appropriation of the premises was temporary, its refusal to act or even communicate on the subject belied that assertion and entitled Source Interlink to terminate the lease by declaring an eviction. Source Interlink’s termination of the Lease is not precluded by Source Interlink’s failure to remove its battery chargers or trade fixtures.

Restatement, Section 10.1 Comment (e) states: The tenant may vacate the leased property without totally emptying the Premises of his property, as long as what is left does not constitute a substantial interference with the landlord’s retaking possession. This residual property did not affect in any way BTR’s retaking of the premises, or the continued use thereof by Fidelitone. In addition, any effort to remove this property would have been inconsistent with the occupation of the premises by Fidelitone. The battery charges were actually being used by Fidelitone, and the removal of the chute would have required not only roof but interior access into rental space then fully used by another business.

Finally, while Source Interlink did retain keys, it did so not to make commercial use of the space but to provide for the security ⁵⁵⁴ of the premises during this dispute. This in no way interfered with Fidelitone’s use of the premises. (Citations omitted) (emphasis added). In its initial brief in this Court, BTR argues that its actions did not constitute a constructive eviction.

This argument, however, invokes the wrong doctrine of law, because the doctrine of constructive eviction is not applicable to the facts of the case sub judice. 2 In its reply brief, BTR clarifies that the circuit court erred in finding that BTR evicted Source Interlink from the property. According to BTR, Source Interlink (1) had decommissioned the property and was only using it to store equipment, (2) “continued to store and showcase property in the facility” even after Fidelitone had left, (3) was informed at all times by BTR that Fidelitone’s occupancy was only temporary, and (4) “maintained the keys to the premises and continued to access the property weekly.” Such facts, argues BTR, demonstrate that BTR did not “interfere[] with any of the activities which Source [Interlink] conducted in the space prior to, during or after the flood.” Because Source Interlink’s “use of the space and its activities with respect to the space never changed,” BTR argues that it ⁵⁵⁵ was “impossible to have an actual eviction.” We disagree and explain. Our review of Maryland case law has disclosed no definition of “actual eviction.” Black’s Law Dictionary 35 (6th ed.1990) defines actual eviction as “[a]n actual expulsion of the tenant out of all or some part of the demised premises. A physical ouster or dispossession from the very thing granted or some substantial part thereof.” (Emphasis added).

Thompson on Real Property § 41.03(c)(2), entitled “Actual Eviction by the Landlord,” explains: The landlord will be in breach of the implied covenant of quiet enjoyment if the landlord, or someone for whose acts the landlord is responsible, wrongfully ousts the tenant from the leased premises. The cases refer to this conduct, which can take the form of physical expulsion or a physical exclusion of the tenant from the leased premises, as an actual eviction. Particular acts by the landlord that have been found to be sufficient to constitute actual eviction of a tenant have included changing the locks on the leased premises, refusing to permit the tenant to enter a building in which space has been leased, padlocking the entry to the leased premises, and taking possession of the leased premises with threats of violence against the tenant or members of the tenant’s family if they attempt to reenter. The cases also recognize that the landlord’s eviction efforts may deprive the tenant of only a portion of the leased premises, leaving the tenant in possession of the remainder.

If the landlord deprives the tenant of a significant portion of the leased premises, the landlord’s conduct will generally be regarded as constituting a partial actual eviction, and a breach of the implied covenant. (Emphasis added) (footnotes omitted); see also Cunningham v. Universal Underwriters, 98 Cal.App.4th 1141 , 120 Cal. Rptr.2d 162, 168-69 (2002) (“The legal definition of an eviction is the same: an ‘eviction’ is ‘[t]he act or process of legally dispossessing a person of land or rental property.’ (Black’s ⁵⁵⁶ Law Diet. (7th ed.1999) p. 575, col. 2.) A wrongful eviction thus occurs when the person recovering the property had no right to dispossess the other party from the property.” (Alteration in original)); cf. Day v. Watson, 8 Mich. 535, 536 (1860) (“[T]he entry being followed by a continuous possession, which was inconsistent with the possessory title assured to the tenants under the lease, that possession amounts very clearly to an eviction.”).

The Restatement (Second) of Property: Landlord and Tenant § 6.1 (hereinafter “the Restatement”), provides in pertinent part: Except to the extent the parties to a lease validly agree otherwise, there is a breach of the landlord’s obligations if, during the period the tenant is entitled to possession of the leased property, the landlord, or someone whose conduct is attributable to him, interferes with a permissible use of the leased property by the tenant. (Emphasis added). Comment (a) to section 6.1 of the Restatement states that “[t]he conduct in § 6.1 is more commonly referred to as an eviction by the