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Appeals court reverses $1M judgment against former Harborplace owner

An appellate panel reversed a $1 million judgment awarded to Harborplace tenant Bubba Gump Shrimp Co., which had sued over sub-par conditions at the downtown retail pavilions.

The Court of Special Appeals reversed the award in a reported opinion Thursday, finding the trial judge improperly applied an unjust enrichment theory after finding Bubba Gump had failed to adequately prove lost profits.

“I never seriously doubted that once an appellate court took a look at this that they were going to reverse the unjust enrichment award,” attorney Benjamin Rosenberg said Thursday.

Bubba Gump entered a lease at Harborplace in 2011 and began operating the following year, according to the opinion, written by Judge Kevin F. Arthur. The lease agreement requires monthly payments and rent includes expenses to cover maintenance of common areas, which Harborplace’s owner, AAC HP Realty LLC, was required to keep in “good order and repair.”

The retail pavilions at 201 E. Pratt St. and 301 Light St. were purchased by Ashkenazy Acquisitions Corps. in 2012. But the struggling shopping and dining complex fell behind in its mortgage and was placed in receivership in May, stripping Ashkenazy of control of the property.

Rosenberg, partner at Rosenberg Martin Greenberg LLP in Baltimore, said the judgment against AAC was carved out of the receivership to allow the company to appeal.

Shortly after it opened, Bubba Gump complained that AAC was not maintaining the property and produced evidence at trial of water leaks, hanging wires and chipping paint, according to the opinion. After initially paying its rent, the restaurant asked for and was granted a three-month reduction in 2015. In the fall of that year, Bubba Gump began withholding rent, though it did pay the amount in full the following year.

Bubba Gump filed suit for breach of contract in November 2016 and claimed to have suffered $2.5 million in lost profits as a result of AAC’s failure to maintain common areas.

A trial judge ruled in June 2018 that AAC had breached its obligations and awarded Bubba Gump $32,000 for security costs, $5,000 in attorney’s fees and $1,096,270.51 as an “equitable rent reduction” under the plaintiff’s unjust enrichment claim. The trial judge declined to award lost profits, finding Bubba Gump had not proven damages because of the breach of contract but called the rent reduction award an “alternative.”

AAC appealed and argued that the award for “equitable rent reduction” was improper because the parties had a lease in place to address breach of contract.

Calling Bubba Gump’s claim for unjust enrichment a “quasi-contract claim,” which is generally not recognized where a contract exists between the parties, the three-judge panel held that the trial judge should not have made an exception and used the common law claim as an alternative.

There was no evidence of bad faith in the formation of the contract and the 50-page lease addresses AAC’s obligations to maintain the property.

The restaurant sought to recover under the quasi-contract theory “only because it failed in its obligation to demonstrate its right to the contractual remedy of lost profits as a result of AAC’s breach,” Arthur wrote.

Arthur was joined by Judge Andrea M. Leahy and retired Judge James A. Kenney III, sitting by special assignment.

Bubba Gump was represented by William F. Ryan Jr. and Ilana Subar, partners at Whiteford Taylor Preston LLP in Baltimore. Ryan and Subar were not immediately available for comment Thursday.

The case is AAC HP Realty LLC v. Bubba Gump Shrimp Co. Restaurants Inc., No. 1076 Sept. 2018.

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