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Ross Dress For Less, Inc. v. Makarios-Oregon, LLC

United States District Court, D. Oregon

January 3, 2019

ROSS DRESS FOR LESS, INC., Plaintiff,
v.
MAKARIOS-OREGON, LLC, Defendant.

          Gregory D. Call and Tracy E. Reichmuth, Crowell & Moring LLP, Joel A. Parker, Rebecca A. Boyette, and Jessica Schuh, Schwabe Williamson & Wyatt pc, Of Attorneys for Plaintiff.

          Jeffrey M. Edelson, Molly K. Honoré, Dallas DeLuca, Paul S. Bierly, and Vivek A. Kothari, Markowitz Herbold pc, Of Attorneys for Defendant.

          OPINION AND ORDER

          Michael H. Simon, United States District Judge

         Plaintiff Ross Dress for Less, Inc. (“Ross”) has moved for partial summary judgment against the first two supplemental counterclaims asserted by Defendant Makarios-Oregon, LLC (“Makarios”). These counterclaims relate to Ross' lease of commercial space in the Richmond Building in downtown Portland, Oregon. Under a 1956 lease and its amendments (collectively, the “Richmond Lease”) (ECF 61-1), Ross was the successor-in-interest to the original lessee, and Makarios was the successor-in-interest to the original lessor. The lease expired on September 30, 2016. Ross vacated the Richmond Building on or about that date. Makarios' first and second supplemental counterclaims allege that Ross failed to return the Richmond Building in the condition required under Section 16 of the Richmond Lease.[1] As a result, Makarios alleges, Ross has both breached an express term of the lease (first supplemental counterclaim) and breached the implied covenant of good faith relating to the lease (second supplemental counterclaim).

         Ross asserts that it first learned in 2017 that Makarios is not, and never has been, the owner of the Richmond Building. Instead, from June 30, 2011, through September 2017, the legal owners of the Richmond Building have been Charles W. Calomiris, Katherine Calomiris Tompros, and Jenifer Calomiris (collectively, the “Calomiris Siblings”), as tenants in common. Among other things, Ross argues that only the actual landowners, the Calomiris Siblings, may assert the claims at issue in the pending motion because the covenants on which those claims are based “run with the land” and the Calomiris Siblings never transferred ownership of the Richmond Building to Makarios. In response, Makarios argues that after a covenant that runs with the land is breached, the cause of action arising from that breach may freely be assigned separate from the land itself and that Makarios received at least one and possibly two valid assignments from the Calomiris Siblings. The first assignment was in 2011 (before the alleged breach), and the second assignment was in 2018 (after the alleged breach). Thus, according to Makarios, it may properly assert its supplemental counterclaims against Ross. Because under modern real property law, causes of action arising from a breach of a covenant that runs with the land are freely assignable post-breach, the Court agrees with Makarios.

         STANDARDS

         A party is entitled to summary judgment if the “movant shows 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). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Although “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for summary judgment, ” the “mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).

         BACKGROUND

         A. Procedural History

         This case originally involved a dispute over a lessee's obligations upon the expiration of two leases, negotiated in 1956, with two separate landlords for two conjoined buildings in downtown Portland. One building is known as the “Richmond Building.” The other is known as the “Failing Building.” The Richmond Building is located at 600 SW Fifth Avenue, Portland, Oregon; the Failing Building is located at 620 SW Fifth Avenue.

         The two leases, as amended and extended, spanned more than 50 years. They ultimately expired on September 30, 2016. The original lessee of both buildings was J.J. Newberry Co. (“Newberry”). In 1996, Ross became the successor-in-interest to Newberry for both leases. After various assignments, Makarios and Walker Place, LLC (“Walker Place”) became the successors-in-interest to the original lessors of the Richmond and Failing Buildings, respectively.

         In December 2014, Ross filed this lawsuit, seeking a judicial declaration that Ross' proposed plans upon the expiration of the leases would satisfy Ross' obligations under the leases, including Section 16 of the Richmond Lease. Makarios and Walker Place asserted counterclaims, seeking both a judicial declaration clarifying the extent of Ross' end-of-lease obligations and money damages for breach of contract. All three parties moved for partial summary judgment, which the Court granted in part and denied in part on March 25, 2016. Ross Dress For Less, Inc. v. Makarios-Oregon, LLC, 180 F.Supp.3d 745 (D. Or. 2016). The parties then agreed to bifurcate this lawsuit. In Phase I, the Court held a bench trial to determine the extent of Ross' end-of-lease obligations, resulting in the Court's written Findings of Fact and Conclusions of Law, issued on June 10, 2016. Ross Dress for Less, Inc. v. Makarios-Oregon, LLC, 191 F.Supp.3d 1189 (D. Or. 2016).

         On September 6, 2016, Ross moved for an order determining whether Ross, over the objections of Makarios and Walker Place, could remain on the premises of the two buildings after the leases expired to complete any work still needed to surrender the premises in the condition required under the leases. On September 27, 2016, the Court ruled that after the leases expire on September 30, 2016, neither Ross nor its agents could enter or remain on the premises of the Richmond or Failing Buildings over the objection of Makarios or Walker Place, respectively. Ross Dress for Less, Inc. v. Makarios-Oregon, LLC, 210 F.Supp. 3D 1259 (D. Or. 2016). On April 3, 2017, both Makarios and Walker Place filed supplemental counterclaims against Ross, to be resolved in Phase II. Several months later, Ross and Walker Place settled their dispute, and Walker Place is no longer a party in this action. On December 26, 2018, Makarios filed its Second Supplemental Counterclaims for Phase II, restating its three supplemental counterclaims. ECF 306.

         As its first supplemental counterclaim, Makarios alleges that the Richmond Lease expired on September 30, 2016, and that Ross vacated the Richmond Building on or about that date but failed to return the premises in the condition required under Section 16 of the Richmond Lease. Makarios seeks money damages for, among other things, “costs of the required work and repairs, architectural, engineering, and other professional fees, legal fees, permit fees, inspection fees, and fees and costs associated with bringing the Richmond Building to the condition required by the Richmond Lease.” ECF 242, ¶¶ 11-12; ECF 306, ¶ 13. As its second supplemental counterclaim, Makarios alleges breach of the implied covenant of good faith and fair dealing and seeks “damages in an amount to be proved at trial.” ECF 242, ¶ 19; ECF 306, ¶ 24.[2] As its third supplemental counterclaim, Makarios alleges that Ross breached the rental payment obligations contained in the Richmond Lease and owes Makarios $48, 166.61 in unpaid rent through the end of the lease period. ECF 242, ¶¶ 22-25; ECF 306, ¶33.[3]

         B. The Ownership of the Richmond Building, the Lease, and the Related Assignments

         1. Building Ownership from 1956 Through 2017

         On September 24, 1956, New York Life Insurance Company (“NYLI”), as owner and landlord of the Richmond Building, leased a portion of that building to Newberry for a term of 30 years, with rights of renewal. ECF 276-1. On September 23, 1986, NYLI sold the Richmond Building to William Calomiris. ECF 261-5, at p. 36. In approximately 2000, William Calomiris passed away. Under the terms of his will, the Richmond Building was bequeathed to his wife, Mary Calomiris, in fee simple absolute. ECF 261-5, at p. 30. On September 5, 2001, Mary Calomiris disclaimed one-half of her interest in the Richmond Building to the William Calomiris Marital Trust Under the Will of William Calomiris. Id. On December 1, 2001, the Estate of William Calomiris, as grantor, deeded its interest in the Richmond Building in fee simple to the William Calomiris Marital Trust and to Mary Calomiris individually. Id.; see also Id. at 34 (correcting personal representatives' deed as of August 15, 2002).

         On June 17, 2011, the William Calomiris Marital Trust granted its remaining interest in the Richmond Building to Mary Calomiris. ECF 261-5, at p. 21. Thus, at that point, Mary Calomiris owned the Richmond Building in fee simple as sole owner. Less than two weeks later, on June 30, 2011, Mary Calomiris, as grantor, deeded the Richmond Building in fee simple to Katherine Calomiris Tompros, Jennifer Calomiris, and Charles W. Calomiris (i.e., the Calomiris Siblings), as tenants in common, each with a one-third interest. ECF 261-5, at p. 14. From June 30, 2011, until September 22, 2017, the Richmond Building was owned in fee simple by the Calomiris Siblings.

         On September 22, 2017, the Calomiris Siblings sold the Richmond Building to MDI Alder Street, LLC for $4.5 million. ECF 261-5, at 8. On that same day, September 22, 2017, MDI Alder Street, LLC deeded to the Richmond Building to an entity known as “Richmond Building, LLC.” ECF 261-5, at 1. Based on this record of ownership, Makarios-Oregon, LLC never owned the Richmond Building, including on September 30, 2016, when Ross vacated that building. At that time, the Richmond Building was owned by the Calomiris Siblings.

         2. The 2011 Assignment of the Lease and Related Security Deposits

         The only interest related to the Richmond Building held by Makarios-Oregon, LLC before the expiration of the Richmond Lease arose under an Assignment and Assumption Agreement dated July 27, 2011 (the “2011 Assignment”). ECF 261-6. This document was entered into among Mary Calomiris, Charles W. Calomiris, Katherine Calomiris Tompros, and Jenifer Calomiris (collectively described in the 2011 Assignment as ...


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