Opinion
Civil Action No. 3:02-CV-1287-D.
June 2, 2004
MEMORANDUM OPINION AND ORDER
This is a removed action involving a dispute over a commercial office lease in which it is undisputed that, over a period of several years, a sophisticated landlord charged, and a sophisticated tenant paid, lower rent than provided for in the lease. This litigation relates primarily to the legal consequences of the parties' conduct during the period in question. Both sides move for partial summary judgment, and, for the reasons that follow, the court grants in part and denies in part both motions.
I
In 1991 Shearson Murray Real Estate Fund IV, Ltd. ("Shearson") leased commercial office space in Lakepoint at Las Colinas ("the Premises") to defendant-counterplaintiff Microsoft Corporation ("Microsoft") under a Standard Office Building Lease Agreement ("Lease") for a ten-year period that commenced on October 1, 1991 and terminated on September 30, 2001. In August 1994 plaintiff-counterdefendant TriNet Corporate Realty Trust Inc. ("TriNet") purchased the Premises from Shearson, who assigned the Lease to TriNet.
The Lease was known in the real estate industry as a base-year lease. Rent was calculated according to two components: Base Rental (the sum of $525,979.64, calculated on a square footage basis and set at an amount that allowed the landlord to recover its base amount of operating expenses for 1992, the first full year of the Lease) and Additional Rental (the tenant's share of any increase of operating expenses over the 1992 base amount for such expenses). Additional Rental, in turn, consisted of three categories: (1) Personnel Costs, (2) Fixed Costs, and (3) Variable Costs. Personnel and Variable costs were subject to a 5% cap on yearly increases over the prior year's costs. The landlord was entitled to carry forward amounts that exceeded the 5% cap to subsequent years in which the increase was less than 5%. Fixed Costs, however, were not subject to the 5% limit.
The Lease required the landlord to provide Microsoft a financial statement on January 1 of each year that estimated in good faith the Additional Rental expenses that it would likely owe during the forthcoming calendar year so that Microsoft could pay the estimated amount of Additional Rental in 12 monthly installments. The Lease also required the landlord to submit by June 1 of each year a reconciliation statement for the prior calendar year that reflected the actual amount of Additional Rental. If the estimated Additional Rental Microsoft paid during the prior year did not cover the actual Additional Rental, Microsoft was required to pay the difference. If Microsoft paid more in estimated Additional Rental than was owed, it received a credit.
When Shearson was the landlord, it classified utilities in the 1992 Base Year Reconciliation as a Variable Cost rather than as a Fixed cost. TriNet continued this practice from 1994 to 1999. When Shearson prepared the first annual reconciliation in 1993, it included utilities in the capped category of Variable Costs. Following a reorganization of management, and during preparation of the calendar year 2000 reconciliation, TriNet determined that from 1994 to 1999 it had mistakenly classified utilities as Variable Costs (i.e., subject to the 5% cap) rather than as Fixed Costs (i.e., not subject to the 5% cap). TriNet also concluded that certain operating expenses that were not recoverable in the year incurred had not been carried forward to later years. On June 1, 2001 TriNet notified Microsoft of its position and demanded payment in excess of $1 million for Additional Rental for the entire Lease period.
TriNet merged with Starwood in 1999 and became iStar Financial Corporation. For ease of reference, the court will refer to TriNet throughout this opinion.
TriNet prepared reconciliation statements for calendar year 2000 and later for 2001 that classified utilities as Fixed Costs and carried forward other costs. Microsoft refused to pay the Additional Rental as calculated under TriNet's new methodology, and it tendered payments for the 2000 and 2001 reconciliations computed according to what the parties had followed in prior years. TriNet refused these payments, and this rent remains unpaid.
TriNet sues for breach of contract or, alternatively, quantum meruit to recover approximately $206,000 in Additional Rental for calendar years 1997-2001 that it contends Microsoft did not pay because utilities were improperly categorized as Variable Costs and because certain operating expenses were not carried forward. It also pleads for attorney's fees. TriNet seeks at a minimum to recover Additional Rental due under the 2000 and 2001 reconciliations calculated according to the established method.
Microsoft counterclaims for attorney's fees under the Lease, contending that TriNet included in its state court petition a claim for amounts due for After Hours Operation that it has now withdrawn, and for constructive eviction after it vacated the Premises on October 11, 2000. Microsoft also relies on various affirmative defenses to TriNet's claims. TriNet, in turn, asserts affirmative defenses to Microsoft's counterclaims.
Microsoft removed this case based on diversity of citizenship, and TriNet filed a petition in state court before the case was removed.
TriNet moves for partial summary judgment on its claim for breach of contract and its alternative action for quantum meruit. It also seeks summary judgment on Microsoft's counterclaims for constructive eviction and attorney's fees and Microsoft's affirmative defenses of limitations, lease modification, waiver, estoppel, accord and satisfaction, laches, ratification, failure to mitigate damages, and credits or offsets under the Lease. Microsoft moves for partial summary judgment on TriNet's breach of contract based principally on its affirmative defenses of waiver and accord and satisfaction. It also maintains that TriNet cannot recover under a theory of quantum meruit because costs of utilities were covered by the Lease, which is a valid, express contract.
In its opening brief, TriNet classifies the defense of credits or offsets as a counterclaim. See P. Oct. 27, 2003 Br. at i, 25. In Microsoft's brief, it refers to it as a defense, see D. Nov. 25, 2003 Br. at 28, and as a counterclaim, id. at 29. In TriNet's reply brief, it refers to credits and offsets as a defense. See P. Dec. 10, 2003 Rep. Br. at 4. Because Microsoft's original counterclaims and first amended answer classify this as an affirmative defense, see D. Counterclaim Am. Ans. Aff. Defenses ¶ 10, the court will do so as well. The related defense set out in ¶ 11 — which relates to personnel costs — no longer appears to be at issue. See P. Oct. 27, 2003 Br. at 25 n. 10; Dec. 10, 2003 Rep. Br. at 4. The court will not address this defense.
TriNet filed a motion to strike summary judgment evidence on November 24, 2003; Microsoft filed objections to, and a motion to strike, TriNet's summary judgment evidence on November 25, 2003; and TriNet filed a motion and supplemental motions to strike summary judgment evidence on December 10, 2003. In deciding the parties' motions for summary judgment, the court in large measure has not relied on any evidence to which an objection has been lodged. Accordingly, to this respect the objections are overruled and motions to strike are denied as moot. In the limited instances in which the court has relied on evidence that is the subject of an objection or motion, the court overrules the objection and denies the motion on the merits.
Because the parties' respective motions and briefing overlap to a large extent, the court will address the motions together.
II A
TriNet moves for summary judgment on the component of its breach of contract claim in which it seeks to recover Additional Rental (i.e., utilities expenses) and carry-forward expenses for calendar years 1997-2001. Microsoft also moves for summary judgment as to this element of TriNet's contract claim, contending principally that the cause of action is defeated based on its affirmative defenses of waiver and accord and satisfaction.
As the court explains below, it is possible that Microsoft can prove at trial the affirmative defenses of waiver and accord and satisfaction. TriNet is not entitled to summary judgment concerning this element of its breach of contract claim because it may be precluded by one or both defenses. Microsoft is not entitled to summary judgment dismissing TriNet's breach of contract action because it has not shown that it is entitled to prevail on one or both defenses as a matter of law.
B
TriNet also moves for partial summary judgment establishing that Microsoft is liable for breach of contract because, at a minimum, it owes unpaid Additional Rental for 2000 and 2001 computed according to the established methodology used from 1994 through 1999. Microsoft opposes this ground of the motion, contending only that TriNet has not presented evidence of the amount owed under this methodology. But TriNet only moves for partial summary judgment based on liability. See P. Oct. 27, 2003 Br. at 7; P. Dec. 10, 2003 Rep. Br. at 3. The absence of evidence of the amount of the breach does not preclude partial summary judgment. See Fed.R.Civ.P. 56(d). The court therefore holds that TriNet is entitled to partial summary judgment establishing that Microsoft is liable under the Lease for unpaid Additional Rental for 2000 and 2001, computed according to the established methodology that the parties followed from 1994 through 1999.
III A
Both sides move for summary judgment as to Microsoft's waiver defense. Their respective summary judgment burdens vary according to who will have the burden of proof at trial. Because waiver is an affirmative defense, Microsoft will have the burden. To be entitled to summary judgment based on this defense, Microsoft "must establish `beyond peradventure all of the essential elements of the . . . defense.'" Bank One, Tex., N.A. v. Prudential Life Ins. Co. of Am., 878 F. Supp. 943, 962 (N.D. Tex 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)). Because TriNet will not have the burden at trial, it can obtain summary judgment by pointing the court to the absence of evidence to support waiver. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If TriNet does so, then Microsoft must go beyond its pleadings and designate specific facts showing there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). Summary judgment is mandatory where the nonmoving party fails to meet this burden. Little, 37 F.3d at 1076.
Because Microsoft shoulders the heavier burden in obtaining summary judgment on this defense, the court will address its motion first. Microsoft relies on a theory of implied waiver, which it contends can be established by intentional conduct that is inconsistent with claiming a known right. It posits that by treating utilities as Variable Costs for nearly ten years (from August 1991 through June 2001), TriNet waived the right to categorize them as Fixed Costs. It argues that the summary judgment evidence establishes as a matter of law that TriNet had actual or constructive knowledge of its rights under the Lease but for a period of almost ten years engaged in a course of dealing and of silence that is wholly inconsistent with its right to categorize utilities as Fixed Costs. It maintains that it has conclusively established TriNet's unequivocal intention to waive this right and has met all the essential elements of the affirmative defense of waiver.
TriNet does not dispute that waiver can be shown by conduct, but it contends, inter alia, that Microsoft has failed to prove conclusively that it has been misled to its prejudice.
TriNet also argues that Microsoft has failed to establish that TriNet unequivocally manifested an intent to waive its right to collect Additional Rental owed under the Lease, that its inadvertent undercharges do not constitute intentional conduct made with full knowledge of material facts, that the mere passage of time does not signify intent to waive under the facts of this case, that it could not have impliedly waived its right to collect the full amount of Additional Rental for 2000 and 2001 because it never undercharged Microsoft for these years, that there is neither evidence of fraud or inequitable consequences nor that estoppel certificates that Microsoft signed in 1994 prevent it from claiming that it would do anything differently related to the pre-1994 time frame, that Microsoft's argument that TriNet must apply a consistent methodology does not bar TriNet's recovery of the proper amount of Additional Rental, and that the Lease does not prevent TriNet from correcting its past mistakes in calculating Additional Rental. The court need not reach these arguments.
B
Under Texas law, waiver is "an intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right." Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003) (per curiam) (quoting Sun Exploration Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987)). "The elements of waiver are: (1) an existing right, benefit, or advantage; (2) knowledge, actual or constructive, of its existence; and (3) actual intent to relinquish the right, which can be inferred from conduct." First Interstate Bank v. Interfund Corp., 924 F.2d 588, 595 (5th Cir. 1991) (citation omitted).A waiver takes place when one dispenses with the performance of something that he has a right to exact, or when one in possession of any right, whether conferred by law or contract, with full knowledge of the material facts, does or forbears to do something, the doing or forbearing of which is inconsistent with the right.Mo.-Kan.-Tex. R.R. Co. v. Heritage Cablevision of Dallas, 783 S.W.2d 273, 280 (Tex.App. 1989, no pet.) (citing Ford v. Culbertson, 158 Tex. 124, 138-39, 308 S.W.2d 855, 865 (1958)). "Silence or inaction, for so long a period as to show an intention to yield the known right, is also enough to prove waiver." Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 643 (Tex. 1996); CDB Software, Inc. v. Kroll, 992 S.W.2d 31, 37-38 (Tex.App. 1998, pet. denied) ("A party's silence or inaction over a period of time long enough to show an intention to yield the known right is enough to show waiver."); Alford, Meroney Co. v. Rowe, 619 S.W.2d 210, 213 (Tex.Civ.App. 1981, writ ref'd n.r.e.) ("There may be evidence of silence or inaction, coupled with knowledge of the known right, for such an unreasonable period of time as to indicate an intention to waive the right."). "Waiver is largely a matter of intent, and for implied waiver to be found through a party's actions, intent must be clearly demonstrated by the surrounding facts and circumstances." Jernigan, 111 S.W.3d at 156 (citation omitted). "Waiver is ordinarily a question of fact. Where the facts and circumstances are admitted or clearly established, however, the question becomes one of law." Tenneco, 925 S.W.2d at 643 (Tex. 1996) (citations omitted); Jernigan, 111 S.W.3d at 156-57 (citation omitted).
The court will assume, as TriNet argues, that its conduct should be measured from August 1994, when it acquired the Premises and Lease from Shearson, to 1999, the last year in which TriNet classified utilities as Variable Costs. Microsoft has introduced evidence that, during each of these years, in annual reconciliations provided to Microsoft, TriNet classified utilities as Variable Costs. During this period, TriNet had constructive knowledge of the contents of the Lease, which provided that utilities be treated as Fixed Costs. In June 1995, after it received the 1994 reconciliation, Microsoft requested that TriNet revise it to identify separately Personnel Costs, Fixed Costs, and Variable Costs, and TriNet classified utilities as Variable Costs. Microsoft has thus demonstrated that TriNet engaged in conduct over a period of several years in which, with full constructive knowledge of its rights under the Lease, it dispensed with Microsoft's performance of something TriNet had the right to exact: the payment of Additional Rental based on the classification of utilities as Fixed Costs and on carry-forward expenses, inconsistent with its rights under the Lease.
Although TriNet advances some arguments in opposition to Microsoft's motion that have questionable merit, one contention is sufficient to preclude summary judgment. TriNet relies on the principle of Texas law that "[w]aiver by implication should not be inferred contrary to the intention of the party whose rights would be injuriously affected thereby, unless the opposite party has been misled to his or her prejudice." Barua v. County of Dallas, 100 S.W.3d 629, 634 (Tex.App. 2003, pet. denied) (citation omitted); see Enserch Corp. v. Rebich, 925 S.W.2d 75, 82 (Tex.App. 1996, writ dism'd by agrmt.) (on rehearing) ("This Court and others have held that ` waiver by implication should not be inferred contrary to the intention of the party whose rights would be injuriously affected thereby, unless the opposite party has been misled to his or her prejudice[.]'" (citing cases)); Cecil Pond Constr. Co. v. Ed Bell Invs., Inc., 864 S.W.2d 211, 215 (Tex.App. 1993, no writ) ("Since waiver can be inferred from conduct, waiver of a right may be implied by silence alone when considered in the circumstances of a particular transaction. But `[w]aiver by implication should not be inferred contrary to the intention of the party whose rights would be injuriously affected thereby, unless the opposite party has been misled to his or her prejudice.'" (citations omitted)). Microsoft has attempted to establish that TriNet misled it to its prejudice, see D. Dec. 9, 2003 Rep. Br. at 5-8, but it has not done so under the "beyond peradventure" standard. Accordingly, the court holds that Microsoft is not entitled to summary judgment on its waiver defense.
C
TriNet also moves for summary judgment establishing that Microsoft is not entitled to prevail on its waiver defense. Microsoft has demonstrated grounds that, if believed by the trier of fact, would permit a finding of waiver. Accordingly, TriNet's motion is denied in this respect.IV
Microsoft and TriNet also move for summary judgment as to Microsoft's affirmative defense of accord and satisfaction. Microsoft maintains that TriNet's claims related to the period 1997 to 1999 are barred on this basis. TriNet asserts that Microsoft cannot establish this defense. Their respective summary judgment obligations are the same as those explained above concerning the affirmative defense of waiver: Microsoft must establish all the essential elements of the defense beyond peradventure. TriNet can point the court to the absence of evidence to support the defense.
In Texas, accord and satisfaction "rests upon a new contract, express or implied, in which the parties agree to the discharge of the existing obligation by means of the lesser payment tendered and accepted." Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex. 1969) (citing Indus. Life Ins. Co. v. Finley, 382 S.W.2d 100 (Tex. 1964)). The evidence must establish that the parties to the agreement consented to the lessee's discharging its obligation fully by its payment. Id. "The new agreement need not state on its face that it is intended to be an accord and satisfaction. The facts and circumstances surrounding the execution of the new agreement are sufficient to establish the existence of an accord and satisfaction." Jenkins v. Steakley Bros. Chevrolet Co., 712 S.W.2d 587, 590 (Tex.App. 1986, no writ) (citing Harris v. Rowe, 593 S.W.2d 303 (Tex. 1979)). Nevertheless,
for this defense to prevail, there must be a dispute and an unmistakable communication to the creditor that tender of the reduced sum is upon the condition that acceptance will satisfy the underlying obligation. The parties must specifically and intentionally agree to the discharge of one of the parties' existing obligations. In other words, to prevail on its defense, [defendant] was required to present summary judgment evidence that [plaintiffs] disputed the fee and specifically and intentionally agreed to relinquish any claims they might have had against [defendant] for its alleged overcharge. To knowingly relinquish claims arising out of [defendant's] alleged overcharge the [plaintiffs] would have to know that an overcharge existed. There is no evidence in the record, however, that there was a fee dispute between [plaintiffs] and [defendant] when [plaintiffs] accepted the settlement. A valid accord and satisfaction requires that there initially be a legitimate dispute between the parties about what was expected.Lopez v. Munoz, Hockema Reed, L.L.P., 22 S.W.3d 857, 863 (Tex. 2000) (citations and internal quotation marks omitted).
Microsoft is not entitled to summary judgment on its defense of accord and satisfaction, however, because it has not demonstrated beyond peradventure that TriNet knew when it accepted rent payments for the period 1997 to 1999 that there was a dispute concerning the amount of Additional Rental owed and an unmistakable communication to TriNet that Microsoft's tender of the reduced sum was upon the condition that acceptance would satisfy the underlying obligation.
For its part, TriNet is not entitled to summary judgment on this defense because the record evidence would permit a reasonable trier of fact to find that, when Microsoft and TriNet engaged in the annual reconciliation process, they negotiated anew the amount that Microsoft would pay and that TriNet would accept for the lease period in question.
V
Microsoft moves for summary judgment dismissing TriNet's alternative cause of action for quantum meruit. TriNet concedes that its claim lacks merit, provided the court agrees that its right to recover utilities expenses is governed by a valid and enforceable contract. P. Dec. 10, 2003 Rep. Br. at 7 ("In the unlikely event that the Court determined that there was no valid and enforceable agreement governing the payment of utility expenses, TriNet seeks to recover the amounts at issue under the alternative theory of quantum meruit.").
Under Texas law, one generally cannot recover for quantum meruit when an express contract covers the services provided. See, e.g., Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990) (citing Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988)) ("Generally, a party may recover under quantum meruit only when there is no express contract covering the services or materials furnished."). "[A] plaintiff may not recover under the general rule of quantum meruit when the claim pleaded fits within the subject matter of a contract between the parties." U.S. Quest Ltd. v. Kimmons, 228 F.3d 399, 406 (5th Cir. 2000). It is clear from the summary judgment record that TriNet's right, if any, to Additional Rental fits within the subject matter of the Lease, which is an express contract.
TriNet does not argue that an exception to the general rule applies in this case.
Accordingly, the court grants summary judgment holding that TriNet cannot recover under its alternative theory of quantum meruit.
VI
Apart from the grounds the court has already addressed, TriNet also seeks partial summary judgment as to Microsoft's affirmative defenses of estoppel, laches, credits and offsets under the Lease, and its counterclaims for constructive eviction and attorney's fees. The court turns first to the estoppel defense.
TriNet also seeks summary judgment as to Microsoft's defenses of limitations, modification, ratification, and failure to mitigate damages. Microsoft has withdrawn these defenses, see D. Nov. 25, 2003 Br. at 2, and the court need not address them.
A
Under Texas law, to establish equitable estoppel, the party with the burden of proof must show that (1) the opposing party made a false representation or concealment of facts; (2) such representation or concealment was made with knowledge, actual or constructive, of those facts; (3) the representation or concealment was made with the intention that it be acted upon; (4) such representation or concealment was made to a party without knowledge or the means of knowledge, of such facts; and (5) the party to whom the misrepresentation was made relied on it to his detriment. Johnson Higgins of Tex., Inc. v. Kennco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998) (citing Schroeder v. Tex. Iron Works, Inc., 813 S.W.2d 483, 489 (Tex. 1991)).TriNet argues that there is no evidence that it intentionally made false representations with knowledge of the true facts, because it made the statements in good faith by mistake. It maintains that there is no evidence that Microsoft relied on any purported misrepresentations to its detriment; instead, it benefited by paying less than it owed. TriNet also posits that Microsoft could have discovered the mistakes because it had the Lease and the yearly reconciliation statements that reflected mistaken undercharges. It asserts that Microsoft cannot meet the requirement of estoppel that it must have been without knowledge or the means of acquiring knowledge of the fact that TriNet is alleged to have represented by its acts, conduct, or silence.
Microsoft responds that estoppel arises where, by the fault of one, the other party has been induced to change his position for the worse, and that the doctrine can operate in circumstances such as those at issue to prevent a party to a contract from exercising or insisting on one of the contractual terms or limitations.
Because Microsoft will have the burden of proof at trial on the affirmative defense of estoppel, to obtain summary judgment, TriNet can point the court to the absence of evidence to support the defense. Celotex Corp., 477 U.S. at 325. Microsoft must go beyond its pleadings and designate specific facts showing there is a genuine issue for trial. See id. at 324; Little, 37 F.3d at 1075. Summary judgment is mandatory where the nonmoving party fails to meet this burden. Little, 37 F.3d at 1076. Microsoft's failure to adduce proof as to any essential element renders all other facts immaterial. Celotex Corp., 477 U.S. at 323.
B
The court holds that Microsoft has failed to introduce evidence that would permit a reasonable trier of fact to find that it was without knowledge or the means of acquiring knowledge concerning how Additional Rental should be computed. See Barfield v. Howard M. Smith Co., 426 S.W.2d 834, 839 (Tex. 1968) (finding estoppel unavailable where it could have made inquiry of other party on its acquiescence in use of improper method of computing rentals under agreement and also failed to show any act of other party that prevented party asserting estoppel from knowing the truth about the acquiescence). Microsoft had constructive knowledge of the contents of the Lease, and it had the means to acquire knowledge about how Additional Rental should be computed. As the Texas Supreme Court explained in Barfield
A party claiming an estoppel must have used due diligence to ascertain the truth of the matters upon which he relies in acting to his detriment. One of the requirements of estoppel is that the party claiming the estoppel was without knowledge, or the means of acquiring knowledge, of the facts which the party to be estopped is alleged to have represented by his acts, conduct or silence. Where the real facts were known to a person or were open for his convenient ascertainment, he was not justified in relying on representation pertaining thereto and he cannot effectively say that he was misled or deceived by such representations. This Court . . . stated that in such a situation there is in truth no material representation or concealment of any fact. The record in this case shows that respondent had a copy of the lease, which the trial court held was clear and unambiguous, and prepared the annual statements in which the improper method of computation was used. Respondent had the means of knowing that it was using the wrong method and underpaying rentals. In the absence of fraud, misrepresentation or mistake, a party is charged with having known the legal effect of a contract voluntarily made. There is no showing of any fraud or misrepresentation by petitioners which would prevent respondent from knowing the legal effect of this lease, and the trial court found there was no mistake. Respondent had the means of knowing that it was breaching its contract and underpaying the rentals. Petitioners' silence on these matters was not a representation that respondent was using the correct method upon which respondent was justified in relying.Id. at 838-39 (citations, internal quotation marks, and brackets omitted).
The court grants summary judgment holding that Microsoft cannot rely on the affirmative defense of estoppel.
VII
TriNet moves for summary judgment on the affirmative defense of laches. It maintains, inter alia, that Microsoft cannot demonstrate that when a lawsuit has been filed within the applicable statute of limitations, laches does not apply except in extraordinary circumstances or some element of estoppel exists.
Laches is an affirmative defense and the party asserting it has the burden of proof. In re Bohart, 743 F.2d 313, 326 n. 13 (5th Cir. 1984). "Generally in the absence of some element of estoppel or such extraordinary circumstances as would render inequitable the enforcement of petitioner's right after a delay, laches will not bar a suit short of the period set forth in the limitation statute." Caldwell v. Barnes, 975 S.W.2d 535, 538 (Tex. 1998) (internal quotation marks omitted) (quoting Barfield, 426 S.W.2d at 840). TriNet seeks in this lawsuit only the damages that would be available under a four-year statute of limitations. The court has already held above that Microsoft's estoppel defense lacks merit as a matter of law. And the facts on which Microsoft relies would not permit a reasonable trier of fact to find the necessary extraordinary circumstances that are required for laches to apply when suit is filed within the limitations period.
Accordingly, the court grants summary judgment barring Microsoft's affirmative defense of laches.
VIII
TriNet seeks summary judgment on Microsoft's counterclaim for constructive eviction.
A
Microsoft counterclaims against TriNet to recover all rents paid for the period October 11, 2000 to September 30, 2001. It alleges that TriNet constructively evicted it when, after Microsoft vacated the Premises, TriNet engaged in significant demolition work (including demolishing the entire fifth floor of the Premises and Microsoft's finish out), replaced the roof, and demolished a lobby wall, which was significant enough to be classified as a capital expenditure, was work that was not allowed under the Lease, was not performed with Microsoft's permission, and was not performed after hours. TriNet posits that it is entitled to summary judgment dismissing this counterclaim because Microsoft can prove none of the essential elements of constructive eviction. In particular, it posits that it did nothing to cause Microsoft to vacate the Premises, it entered them as permitted under the Lease to prepare the Premises for a future tenant, and Microsoft never sought to reoccupy the Premises after it vacated them.
B
The essential elements of constructive eviction are as follows: (1) An intention on the part of the landlord that the tenant shall no longer enjoy the premises, which intention may be inferred from the circumstance; (2) A material act by the landlord or those acting for him or with his permission that substantially interferes with the use and enjoyment of the premises for the purpose for which they are let; (3) The act must permanently deprive the tenant of the use and enjoyment of the premises; (4) The tenant must abandon the premises within a reasonable time after the commission of the act.Downtown Realty, Inc. v. 509 Tremont Bldg., Inc., 748 S.W.2d 309, 311 (Tex.App. 1988, no writ.) (citing cases). Microsoft relies primarily upon Lucky v. Fidelity Union Life Insurance Co., 339 S.W.2d 956 (Tex.Civ.App. 1960, no writ), to avoid summary judgment. It argues that Lucky held on very similar facts that there was a genuine issue of material fact whether the tenant had been constructively evicted. TriNet replies that the evidence affirmatively disproves that Microsoft abandoned the Premises as a direct consequence of TriNet's actions; instead, the conduct on which Microsoft relies all occurred after Microsoft voluntarily vacated the Premises subsequent to signing a lease on different property. TriNet also maintains that courts before and after Lucky have required that tenants abandon premises as a direct consequence of the landlord's act, and that Lucky is factually distinguishable.
Microsoft's ability to withstand summary judgment pivots on whether Lucky represents sufficient authority to support its reliance on TriNet's conduct undertaken after Microsoft vacated the Premises. Although the court has found no indication that Lucky has been expressly overruled, even the Dallas Court of Appeals, which decided Lucky, has since held that constructive eviction requires proof that the tenant abandoned the leasehold because of the landlord's act of substantial interference with the use and enjoyment of the premises. See Coleman v. Rotana, Inc., 778 S.W.2d 867, 872 (Tex.App. 1989, writ denied) ("In addition, it was appellants' burden to offer evidence that the premises were abandoned because of inadequate parking, the intentional act of the landlord upon which they rely. Appellants have produced no evidence that Catalina Cafe, Inc. abandoned the premises in April 1987 because of inadequate parking. The record is silent as to the reason for the Hard Luck Cafe's closing at that time." (citation omitted)); Tempo Tamers, Inc. v. Crow-Houston Four, Ltd., 715 S.W.2d 658, 663 (Tex.App. 1986, writ ref'd n.r.e.) ("As an element of constructive eviction, it was incumbent upon Tempo to prove that Crow's interference with its sign caused it to abandon the shopping center and close the nightclub.") (citations omitted)). Microsoft cannot prove that it abandoned the Premises as a direct consequence of the capital improvements that TriNet undertook after Microsoft voluntarily departed to enter into a new lease. Microsoft's failure to establish this essential element of its constructive eviction counterclaim renders all other facts immaterial. Celotex Corp., 477 U.S. at 323. TriNet is therefore entitled to summary judgment dismissing the counterclaim.
The Dallas court of appeals has cited Lucky once in a published opinion, see PRC Kentron, Inc. v. First City Center Associates, II, 762 S.W.2d 279 (Tex.App. 1988, writ denied), but it did so in recounting appellant-tenant's contention on appeal that leaving does not constitute abandonment of the lease, as long as the tenant continues to pay rent, id. at 281. The court has found no indication that the Dallas court of appeals would rely on Lucky to undermine its jurisprudence that constructive eviction requires that a tenant abandon premises as a direct consequence of the landlord's act.
IX
TriNet moves for summary judgment on Microsoft's defense that it is entitled to credits and offsets under the Lease for the wear and tear portions of payments made for after hour operations.
See supra note 3 for an explanation of why this is a defense rather than a counterclaim.
TriNet argues that Microsoft has not pleaded this defense. The court rejects this argument and holds that the defense is adequately pleaded under a notice pleading standard. See D. Counterclaim Am. Ans. Aff. Defenses ¶ 10.
A
Under § 45(e) of the Lease, Microsoft paid TriNet $15 per hour per floor for "After Hours Operation." Section 45(e) states that the "rate of $15.00 is allocated among such components in the following approximate manner: electrical — $10.23; water and sewer — $.34; miscellaneous supplies — $.55; repair and maintenance — $1.36; and wear and tear — $2.52." P. Oct. 27, 2003 App. 66. Section 7 of the Lease sets out definitions of terms that control how the amount of Additional Rental is calculated. Section 7(a)(vii)(I) contains a limitation on the definition of the term "Operating Expenses." It provides that "Operating Expenses" do not include, inter alia, "charges for electricity, water, other utilities and applicable taxes for which Landlord is entitled to reimbursement from any tenant[.]" Id. at 50-51. Microsoft incurred After Hours Operation charges during 1992-2000, but Microsoft received a credit for all but the wear and tear components of these charges. Microsoft relies on § 7(a) (vii) (I) of the Lease and the manner in which Shearson calculated operating expenses in the 1992 base year to contend that it should not have been charged for wear and tear. It maintains that it paid $933,359.00 for After Hours Operation, but in TriNet's calculation of Additional Rental, it was only credited $776,554.00, the difference representing the portion that relates to wear and tear. Microsoft views § 45(e) as a cash flow mechanism that permitted Shearson and then TriNet to obtain up front the cost of After Hours Operation and avoid paying these costs out of pocket, after which the landlord was obligated to credit the payments back to Microsoft. It argues that, under the Lease, after hours operations were not a separate profit center for the landlord.TriNet interprets the Lease differently. It contends that neither Shearson nor TriNet was required to credit back any part of the payments for After Hours Operation, that Microsoft was never charged for wear and tear as an operating expense, and that TriNet was not required to credit wear and tear against such an operating expense. TriNet argues that § 7(a)(vii)(I) does not explicitly apply to wear and tear and only applies if there are operating expense charges for items for which the landlord is entitled to reimbursement, and the landlord never included wear and tear as a component of operating expenses. TriNet also maintains that § 7(a)(vii)(I) only applies when a tenant other than Microsoft has reimbursed it for charges for electricity, water, other utilities, and applicable taxes. It argues that interpreting the Lease as does Microsoft would lead to the absurd result that the landlord would retain none of the payments that were intended under the Lease to cover its cost of providing After Hours Operation.
B
The court disagrees with Microsoft's interpretation of how §§ 45(e) and 7(a)(vii)(I) interrelate. At a minimum, § 7(a) (vii) (I) does not explicitly address wear and tear, and §§ 45(e) and 7 (a) (vii) (I) cannot be read together to require TriNet to credit Microsoft for the part of the hourly charge that the Lease allocates to wear and tear. To the extent that Microsoft asserts a right to wear and tear credits under its interpretation of these provisions of the Lease, the court rejects the argument as a matter of contract interpretation.
TriNet is not entitled to summary judgment, however, because Microsoft has raised a genuine issue of material fact regarding how Shearson calculated operating expenses for the 1992 base year expense calculation. See D. Nov. 25, 2003 Br. at 28; D. Nov. 25, 2003 App. 3-4. TriNet has not adequately addressed this argument in its reply brief.
Accordingly, although the court limits the basis on which Microsoft can assert this defense, it denies TriNet's motion for summary judgment in this respect.
X
The court turns finally to TriNet's motion for summary judgment concerning Microsoft's counterclaim for attorney's fees.
Microsoft alleges that it is entitled to recover attorney's fees under the Lease because TriNet has abandoned the bulk of its claim for Additional Rent (it now seeks approximately $206,000 rather than $1 million), and the Lease provides for recovery of such fees. It argues that, under Texas law, a prevailing party includes one who successfully defends an action on the main issue, and that it has done so as to TriNet's abandoned claims. Alternatively, Microsoft posits that TriNet is not entitled to summary judgment dismissing the counterclaim because neither side has as yet prevailed. TriNet contends it is entitled to summary judgment dismissing this counterclaim insofar as it is based solely on the withdrawal of part of its breach of contract action.
Section 34 of the Lease provides that "[a]ny reasonable attorneys' fees and expenses incurred by either party hereto in connection with litigation between such parties relating to this Lease shall be paid by the non-prevailing party." D. Oct. 27, 2003 App. 34. "The term `prevailing party,' for the purposes of awarding attorneys' fees, refers to a party who successfully prosecutes an action or successfully defends an action on the main issue." Norrell v. Aransas Cty. Navigation Dist. No. 1, 1 S.W.3d 296, 303 (Tex.App. 1999, no writ) (citations and emphasis omitted).
Microsoft essentially asserts as a component of its counterclaim that, because TriNet has eliminated its claim for unpaid rent based on After Hours Operation and, in turn, reduced the damages sought under its breach of contract claim by approximately 85%, Microsoft has become the prevailing party and is entitled to its attorney's fees. The court agrees with TriNet that this circumstance does not of itself make Microsoft the prevailing party on the main issue. Cf. McKinley v. Drozd, 685 S.W.2d 7, 10-11 (Tex. 1985) (overruling cases that held under precursor attorney's fees statute that party suing for breach of contract was required to obtain net recovery to recover attorney's fees). Microsoft is not entitled to an award of attorney's fees under the Lease if the litigation concludes with this premise as the sole basis on which to make such an award. Nevertheless, because at the conclusion of this case Microsoft may have successfully defended on the main issue — for example, TriNet's breach of contract claim may be found to be barred based on an affirmative defense — the court denies TriNet's motion for summary judgment in this respect.
* * *
For the reasons assigned, the court grants in part and denies in part Microsoft's October 27, 2003 motion for partial summary judgment and grants in part and denies in part TriNet's October 27, 2003 motion for partial summary judgment.
There are references in the briefing to the fact that the parties have attempted several times to settle this case. This is the very type of lawsuit that should be settled. With the benefit of rulings by the court, the parties should now attempt in good faith to resolve this litigation.