Legal Opinions – U.S. District Court, Maryland – MJ Harbor Hotel, LLC v. McCormick & Schmick Restaurant Corp., USDMD Civ. No. WDQ-07-2368

Contracts
Breach of lease agreement

BOTTOM LINE: District court denied cross-motions for summary judgment where multiple issues of fact existed concerning breach of lease agreement.

CASE: MJ Harbor Hotel, LLC v. McCormick & Schmick Restaurant Corp., USDMD Civ. No. WDQ-07-2368 (decided Feb. 18, 2009) (Judge Quarles). RecordFax No. 9-0218-41, 23 pages.
 
FACTS: On July 16, 1997, McCormick & Schmick ECP III, a predecessor of McCormick & Schmick Restaurant Corp., contracted with The Inn at Pier 5 Limited Partnership, a predecessor of MJ Harbor Hotel, LLC (Harbor Hotel), to lease space in the Pier 5 complex located at 711 Eastern Avenue, Baltimore Maryland. The space was to be used for “[t]he operation of an upscale, sitdown, full service white tablecloth seafood restaurant, together with accompanying bar/alcoholic beverage service.”
 Sometime before 2001, Harbor Hotel became the landlord under the 1997 lease. On Aug. 17, 2001, McCormick & Schmick Restaurant Corp. became the tenant under the lease. McCormick & Schmick Acquisition Corp. was the guarantor of the tenant’s obligations under the lease.
Section 10.5 of the 1997 lease restricted the tenant from directly or indirectly operating a restaurant “of a similar kind” within a 10 mile radius of the leased property. Section 10.5 stated that “any restaurant operating under the name of ‘McCormick and Schmick’ and/or whose menu consists of 50% or more seafood entree items shall be deemed ‘another restaurant of a similar kind’.”
 Section 39.1.2 of the 1997 lease defined a Default as any failure by the tenant to perform a “covenant, agreement, obligation, or condition…other than the payment of Rent or Additional Rent” after the landlord has provided notice of the default and the tenant has failed to cure within 30 days. Under §10.5 of the lease, rent included a percentage of the income of a similar restaurant operated by McCormick & Schmick.
 In March 2003, McCormick & Schmick Restaurant Corp. contracted with Harbor Place Associates Limited Partnership, an affiliate of the Rouse Companies, to lease space in the Pratt Street Pavilion of Harborplace. That space was to be used for “the operation of a full service, medium to better quality M & S Grill restaurant serving lunch and dinner and offering menu items substantially similar to those offered in the majority of M & S Grill restaurants.”
 In October 2003, McCormick & Schmick Restaurant Corp. opened an M & S Grill restaurant in Harborplace. The Harborplace M&S Grill was located within 10 miles of the Pier 5 McCormick & Schmick.
 On July 31, 2007, Harbor Hotel sued McCormick & Schmick Restaurant Corp. and McCormick & Schmick Acquisition Corp. (collectively, McCormick & Schmick) in the circuit court. McCormick & Schmick removed the case to district court where Harbor Hotel filed an amended complaint seeking a declaration that it was owed damages recoverable under §10.5 of the lease.
 Harbor Hotel moved to strike McCormick & Schmick’s expert report and testimony and for partial summary judgment. McCormick & Schmick filed a cross-motion for summary judgment.
 The district court denied all of the motions.

LAW: Harbor Hotel contended that M& S Grill was operating under the name “McCormick & Schmick,” in violation of §10.5 of the 1997 lease.
 If a contract is unambiguous, “the court must give effect to its plain meaning and not contemplate what the parties may have subjectively intended.” Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448 (2008). A contract term is ambiguous if, “when read by a reasonably prudent person, it is susceptible of more than one meaning.” Id. at 448. If a term is ambiguous, its interpretation is a question for the factfinder. Prison Health Services, Inc. v. Baltimore County, 172 Md. App. 1, 8 (2006).
 Section 10.5 stated that “any restaurant operating under the name of ‘McCormick and Schmick’…shall be deemed ‘another restaurant of a similar kind’.” Section 10.5’s use of quotation marks strongly suggested that only a restaurant identifying itself as “McCormick & Schmick” was deemed a restaurant of a similar kind.
 Additionally, when “McCormick & Schmick” was in §1.6 of the lease, it identified the tenant’s trade name, which suggested that under §10.5, only a restaurant with the name “McCormick & Schmick” was “a restaurant of a similar kind.” As Harbor Hotel noted, however, the term “operating under” did not unequivocally refer to a restaurant’s trade name. Because the term was ambiguous, whether “M & S Grill” operated under the name “McCormick & Schmick” was a question for the factfinder.
 Section 10.5 of the lease stated that “any restaurant…whose menu consists of fifty percent…or more seafood entre[e] items shall be deemed ‘another restaurant of a similar kind’.” “Menu” was not defined in the lease. Harbor Hotel contended that the menu attached to the M&S Grill lease (the old menu) contained “fifty percent or more” “menu” seafood entree items. The old menu was used at the Washington, D.C. M & S Grill before March 11, 2003, the date on which the Harborplace lease was signed.
 The old menu was not dispositive of whether M&S Grill is a “similar kind” of restaurant under §10.5; however, the 1997 lease did not specify which menus must be examined for seafood entree items. Accordingly, whether M & S Grill’s “menu” violated the 1997 lease was a question of fact. Prison Health Services, Inc., 172 Md. App. at 8.
 The parties also disagreed about when an entree was a “seafood entree.” The term “seafood entree” may be reasonably construed in accordance with Harbor Hotel’s view or with McCormick and Schmick’s view. Accordingly, the construction of this ambiguous term was a matter for the fact-finder. Prison Health Services, Inc., 172 Md. App. at 8.
 Harbor Hotel contended that, in addition to being “deemed a restaurant of a similar kind,” under §10.5, M&S Grill was a “restaurant of a similar kind” as the term was generally used in the 1997 lease. Section 1.23 of the 1997 lease permitted the tenant to operate an “upscale, sit-down, full service white tablecloth seafood restaurant.” Section 1.1.F. of the M&S Grill lease permitted the tenant to operate a “full service, medium to better quality M & S Grill restaurant.”
 The permitted use of the Harborplace lease may encompass the permitted use of the 1997 lease agreement because a “better quality M&S Grill restaurant” may be an “upscale, sitdown, full service white tablecloth seafood restaurant.” Whether §10.5 prohibited the operation of the M&S Grill was a question of fact.
 Because there was a genuine dispute of material fact as to whether McCormick & Schmick and M&S Grill were, generally, restaurants of a similar kind, Harbor Hotel’s motion for summary judgment was denied.

COMMENTARY: McCormick & Schmick sought partial summary judgment on whether M&S Grill was a restaurant of a similar kind under §10.5.
 There were issues of material fact as to whether M & S Grill was in violation of “operating under” the name “McCormick & Schmick” or had a menu with 50% or more seafood entrees. Accordingly, summary judgment on
the “operating under” and “seafood entree” provision was denied.
 McCormick & Schmick also moved for summary judgment, contending that the restaurants are not similar because: (1) M&S Grill did not include “The Fresh List” on its menu, unlike McCormick & Schmick; (2) the check prices at the restaurants were substantially different; and (3) McCormick & Schmick was required by the lease to use white tablecloths, which M&S Grill did not use.
 Those facts were countered by Harbor Hotel’s evidence that the two restaurants were similar. Thus, that evidence precluded summary judgment for McCormick & Schmick.
 McCormick & Schmick contended that, if M & S Grill was a restaurant of a similar kind, Harbor Hotel was barred from any recovery before February 1, 2008 — 30 days after it gave McCormick & Schmick written notice of default because §39.1 of the lease required Harbor Hotel to provide McCormick & Schmick written notice of default and 30 days to cure.
 Harbor Hotel and McCormick & Schmick presented reasonable interpretations of the interplay between §39.1 and §10.5. Accordingly, the relationship between §39.1 and §10.5 was an issue for the factfinder. See Prison Health Services, Inc., 172 Md. App. at 8.
 McCormick & Schmick contended that Harbor Hotel knew of the M & S Grill when it opened in October 2003, and its long delay in notifying McCormick & Schmick of the breach of §10.5 waived its rights under the lease.
 A party to a contract waives its rights under that contract if it (1) intentionally continues performance under the contract after (2) learning of a breach. Pumphrey v. Pelton, 250 Md. 662, 667-668 (1968). Waiver is “the intentional relinquishment of a known right.” Taylor v. Mandel, 402 Md. 109, 135 (2007) (citing In re Blessen H., 392 Md. 684, 698 (2006)).
 Waiver may result from “an express agreement [to allow the breaching conduct to continue] or be inferred from circumstances.” Gould v. Transamerican Associates, 224 Md. 84, 294 (1961). “The intention to waive must be clearly established and will not be inferred from equivocal acts or language.” The Redemptorists v. Coulthard Services, Inc., 145 Md. App. 116, 136-37 (2002). “The question of whether waiver has occurred is a question of fact.” City of Bowie v. MIE Properties, Inc., 398 Md. 657, 699 (2007).
 McCormick & Schmick relied on Pumphrey v. Pelton, in which Pelton — a Dairy Queen franchisor — was found to have waived his right to terminate a contract with Pumphrey — a franchisee — based on Pumphrey’s breach of a contract provision barring him from selling non-Dairy Queen products at his restaurant. The Court held that Pelton waived his rights under the contract because he “agreed by his conduct to a modification of the contract.” Pumphrey, 250 Md. at  671.
 However, Pelton knew that Pumphrey was breaching the contract and publicly and privately agreed to allow the sale of non-Dairy Queen products. Id. at 663-7. Unlike Pumphrey, Harbor Hotel has not admitted intentionally allowing McCormick & Schmick to operate a “restaurant of a similar kind” and has not publicly acquiesced to the breach.
 Although intent may be inferred from the circumstances, Gould. 224 Md. at 294, finding such an inference is a matter for the fact-finder where knowledge of the breach and intent to allow the breach are disputed.

PRACTICE TIPS: Harbor Hotel moved to strike the written report produced by Douglas Bregman, Esquire, McCormick & Schmick’s expert real estate attorney. Alternatively, Harbor Hotel sought to exclude Bregman’s written report and testimony.
 Under FRCP 12(f), a “court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” FRCP 12(f). A pleading is a complaint, an answer to a complaint, an answer to a counterclaim, an answer to a cross claim, an answer to a third-party complaint, or a court-ordered reply to an answer. FRCP 7(a). Because Bregman’s report and testimony are not pleadings, they are not subject to this rule. Thomas v. Bet Sound-Stage Restaurant/Brettco, Inc., 61 F. Supp. 2d 448, 458 (D. Md. 1999).
 FRE 702 “provides that if ‘scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue,’ a qualified expert may testify thereto.” Safeway, Inc. v. Sugarloaf Partnership, LLC, 423 F.Supp.2d 531, 538 (D. Md. 2006) (citing FRE  702). “Evidence supplied by experts as to legal conclusions is not admissible.” Id. at 538.
 In his report, Bregman explained that his knowledge of commercial leasing is the result of experience (1) authoring a textbook on Maryland landlord/tenant law, practice, and procedure; (2) authoring articles on landlord/tenant law; (3) advising landlords and tenants during commercial lease negotiations and drafting; (4) advising parties on commercial lease litigation; and (5) managing commercial property. 
 Bregman then (1) explained that certain provisions in the lease agreement are common in commercial leases; (2) commented on the general value of those lease provisions; (3) interpreted the landlord’s duties under the lease agreement; and (4) stated that he believed that Harbor Hotel forfeited any claim under §10.5 of the Lease Agreement because he failed to give prompt notice of the alleged default.
 Bregman’s expertise was intertwined with legal issues and the ultimate issue to be decided was the interpretation of a contract according to legal principles.
 Bregman’s report and testimony was admitted to the extent they illuminate whether the terms used in the 1997 and Harborplace lease are terms of art with uniformally — or widely understood — understood meanings.