IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA CIVIL DIVISION TRUMP OLD POST OFFICE LLC, Plaintiff, vs. CZ-NATIONAL, LLC AND BVS ACQUISITION CO., LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) Case No. 2015 CA 005890 B Judge Brian F. Holeman Next Event: Motions Decided: August 31, 2016 DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT Pursuant to DC Civil Rules 56 and 12-I(k), and there being no material issue of fact in genuine dispute with respect to this motion, Defendants CZ-National, LLC (“Zakarian”) and BVS Acquisition Co., LLC (together, “Defendants”), by counsel, submit this Motion for Partial Summary Judgment, on the grounds that the only evidence that Trump Old Post Office LLC (“Trump OPO”) has proffered in support of its $14 million damages claim would not, as a matter of law, permit Trump OPO to recover any damages under the Sublease or District of Columbia law. Defendants respectfully request that judgment be entered in favor of Defendants on all of Trump OPO’s claims for damages. As more fully set forth in the accompanying Memorandum of Points and Authorities in Support of this Motion, Defendants expect to prevail in a trial on the merits regarding Zakarian’s decision to terminate the Sublease for space at the Old Post Office project. Specifically, they expect to readily establish that Mr. Donald Trump, in making his infamous comments regarding immigrants – which he has now admitted he made without any regard at all for their impact on his tenants – breached the duty of good faith and fair dealing implied in the Sublease, insofar as 1 his comments would materially interfere with Zakarian’s ability to open and operate a successful restaurant in this new market. While it could fairly be argued at this stage of the proceedings that there are facts to be determined by the Court regarding the underlying merits of the “breach” claimed by both parties, the evidence of record in this case regarding Trump OPO’s damages claim is not disputed, and it prevents as a matter of law Trump OPO’s ability to recover damages. In short, as set forth more fully in the attached Memorandum, Trump OPO agreed in the Sublease that, upon Zakarian’s termination of the Sublease, Trump OPO could elect either to sue immediately or to wait until the actual damages from the termination were ascertainable. Trump OPO elected (perhaps precipitously) to sue immediately – less than a month passed after Mr. Zakarian announced his withdrawal from the project before Trump OPO filed suit. Upon that election, however, Trump OPO’s damages were subject to an agreed formulation. Trump OPO overlooked or ignored that formulation when it prepared its damages claim in this case. The damages Trump OPO seeks in this case, which were calculated by its expert witness and set forth in his report, are not reconcilable with the Sublease’s agreed formulation and do not address required elements. The time for supplementing expert reports is long past, and Trump OPO’s damages claims therefore fail as a matter of law. ORAL HEARING REQUESTED Defendants respectfully request oral argument on this motion. Dated: July 19, 2016 Respectfully submitted, /s/ Deborah B. Baum Deborah B. Baum (D.C. Bar No. 393019) Email: deborah.baum@pillsburylaw.com Alvin Dunn (D.C. Bar No. 423229) Email: alvin.dunn@pillsburylaw.com Adya S. Baker (D.C. Bar No. 1025477) Email: adya.baker@pillsburylaw.com 2 PILLSBURY WINTHROP SHAW PITTMAN LLP 1200 Seventeenth Street, N.W. Washington, D.C. 20036 Tel: (202) 663-8000 Fax: (202) 663-8007 Counsel for CZ-National, LLC. and BVS Acquisition Co., LLC 3 RULE 12-I CERTIFICATION Pursuant to D.C. Civil Rule 12-I(a), I hereby certify that counsel for Defendants sought consent for the relief requested in this Motion for Partial Summary Judgment from counsel for Plaintiff. Plaintiff did not consent. /s/ Deborah B. Baum Deborah B. Baum 4 CERTIFICATE OF SERVICE I hereby certify that on July 19, 2016, the foregoing Defendants’ Motion for Partial Summary and its accompanying documents were served via the court’s electronic filing system on the following counsel of record: Rebecca Woods Seyfarth Shaw LLP 975 F Street, N.W. Washington, D.C. 20004 rwoods@seyfarth.com Counsel for Plaintiff Trump Old Post Office, LLC /s/ Adya S. Baker Adya S. Baker 5 IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA CIVIL DIVISION TRUMP OLD POST OFFICE LLC, Plaintiff, vs. CZ-NATIONAL, LLC AND BVS ACQUISITION CO., LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) Case No. 2015 CA 005890 B Calendar 12 Judge Brian F. Holeman [PROPOSED] ORDER GRANTING PARTIAL SUMMARY JUDGMENT FOR DEFENDANTS Upon consideration of Defendants’ Motion for Partial Summary Judgment filed on July 19, 2016, the record and undisputed facts before the court, and the arguments of counsel, it is hereby ORDERED, that Defendants’ Motion for Partial Summary Judgment is GRANTED; and it is further ORDERED, that judgment is entered for Defendants and against Plaintiff on Plaintiff’s claims for damages. Date: _____ BRIAN F. HOLEMAN, JUDGE Copies e-served to: Rebecca Woods, Esquire SEYFARTH SHAW LLP 975 F Street, N.W. Washington, D.C. 20004 Counsel for Plaintiff Deborah B. Baum, Esquire Alvin Dunn, Esquire Adya S. Baker, Esquire PILLSBURY WINTHROP SHAW PITTMAN LLP 1200 17th Street, N.W. Washington, D.C. 20036 Counsel for Defendants INDEX OF EXHIBITS Donald Trump Deposition Excerpts ............................................................................ Ex. A Ivanka Trump Deposition Excerpts ............................................................................. Ex. B Donald Trump, Jr. Deposition Excerpts ...................................................................... Ex. C Agreement of Sublease, Dated February 19,2015, Between Trump Old Post Office LLC and CZ-National, LLC ................................... Ex. D Geoffrey Zakarian Deposition Excerpts ....................................................................... Ex. E Plaintiff Trump Old Post Office LLC’s Reponses to Defendants’ First Set of Requests for Admission .................................... Ex. F David Orowitz Deposition Excerpts ............................................................................ Ex. G Jeffrey Pollak Deposition Excerpts .............................................................................. Ex. H Raymond Flores Deposition Excerpts ........................................................................... Ex. I Roger Cline Deposition Excerpts...................................................................................Ex. J Expert Report of Roger S. Cline .................................................................................. Ex. K John Asadoorian Deposition Excerpts .......................................................................... Ex. L Excerpts from Agreement of Sublease, Dated November 19, 2014, Between Trump Old Post Office LLC and Topo Atrio LLC .......................................Ex. M Deposition Exhibits Letter from D. Baum to D. Trump, Jr., July 17, 2015 ....................................... Dep. Ex. 52 Hunter Walker, Donald Trump just released an epic statement raging against Mexican immigrants and ‘disease,’ BUSINESS INSIDER (July 6, 2015) ............ Dep. Ex. 161 Missy Frederick, Geoffrey Zakarian Pulls Out Of Trump Hotel Project, WASHINGTON DC EATER (July 9, 2015) .......................................................... Dep. Ex. 162 Letter from D. Trump, Jr. to CZ-National (July 10 2015) ............................... Dep. Ex. 163 Letter of Credit Draw Documents.................................................................... Dep. Ex. 165 IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA CIVIL DIVISION TRUMP OLD POST OFFICE LLC, Plaintiff, vs. CZ-NATIONAL, LLC AND BVS ACQUISITION CO., LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) Case No. 2015 CA 005890 B Judge Brian F. Holeman Next Event: Motions Decided: August 31, 2016 STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF DEFENDANTS MOTION FOR PARTIAL SUMMARY JUDGMENT Defendants CZ-National, LLC (“Zakarian” or “CZ-National”) and BVS Acquisition Co., LLC (“BVS” and together with CZ-National, “Defendants”), by counsel, hereby submit this Statement of Material Facts as to Which No Genuine Issue Exists. The following are the material facts which form the basis for Defendants’ accompanying Motion for Partial Summary Judgment, but this is not intended to be an exhaustive list of all undisputed material facts in this action. The following facts are undisputed: DAMAGES UNDER THE SUBLEASE 1. The Sublease grants Trump OPO a right to “damages as provided in Section 23(d).” Sublease § 23(c)(i)(4). 2. Sublease § 23(d)(i) provides two categories of damages under subsections (1) and 3. Sublease § 23(d)(i)(2) sets forth two alternative formulas to calculate Trump (2). OPO’s remaining damages. 4. Under Sublease § 23(d)(i)(2)(y), Trump OPO’s damages are based on Rent due “payable upon the due dates therefor,” as set forth in full below: 1 sums equal to the Base Rent and Additional Rent (including Annual Percentage Rent) that would have been payable by Tenant (as determined pursuant to the same assumptions as used in connection with determining Additional Rent under clause (x) above) had this Sublease not so cancelled or terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor (as provided in this Sublease) following such cancellation or termination or such re-entry until the date that would have been the Expiration Date if this Sublease had not been so cancelled or terminated or if Landlord had not so reentered the Demised Premises, provided however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred by Landlord in cancelling or terminating this Sublease or in re-entering the Demised Premises and in securing possession thereof, as well as the Reletting Expenses and any indebtedness other than rents payable hereunder from Tenant to Landlord, it being understood that any such reletting may be for a period shorter or longer than what would have been the unexpired portion of the Term if this Sublease had not been so cancelled or terminated or if Landlord had not so re-entered the Demised Premises, but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this subdivision to a credit in respect of any net rents from a reletting, except to the extent that such net rents are actually received by Landlord. 5. Trump OPO is not seeking damages under Sublease § 23(d)(i)(2)(y) as it has not sued for unpaid rent due on any specific dates. 6. Trump OPO may seek other categories of damages in addition to the particular formulas for rental damages that the Sublease sets forth, as noted in Sublease § 23(d)(ii): Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default of Tenant hereunder. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for and obtain as damages by reason of the termination of this Sublease or re-entry on the Premises for the default of Tenant under this Sublease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved whether or not such amount is greater than, equal to, or less than any of the sums referred to in Subsection 23(c). 2 7. Mr. Trump, who signed the Sublease for Trump OPO, had never read Sublease § 23(d) regarding the monetary damages permitted under the Sublease. Donald Trump Dep. 40:18-41:4. Damages Based on Rent and Rental Value 8. Under Sublease § 23(d)(i)(2)(x), Trump OPO’s damages are based on: a sum that, at the time of such cancellation or termination of this Sublease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the positive difference, if any between, (A) the aggregate amount of Base Rent and Additional Rent (including Annual Percentage Rent) that would have been payable by Tenant . . . for the period commencing with such cancellation or termination of this Sublease or the date of any such re-entry, as the case may be, and ending with the date that would have been the Expiration Date if this Sublease had not so cancelled or terminated or if Landlord had not so reentered the Demised Premises, minus (B) the aggregate rental value of the Demised Premises for the same period, 9. Sublease § 23(d)(i)(2)(x)(A) “conclusively” presumes all amounts of “Additional Rent” and “Annual Percentage Rent” are the same as the amounts paid in the previous year or part of a year: conclusively presuming that the Annual Percentage Rent and other items of Additional Rent would be the same as were payable for the year immediately preceding the cancellation, termination or re-entry, or, if less than 365 days have then elapsed since the Commencement Date until such cancellation, termination or re-entry, the amount of Percentage Rent and other items of Additional Rent equal to the product of 365 and the fraction the numerator of which is the actual amount of Percentage Rent and other items of Additional Rent that accrued during such period of less than 365 days and the denominator of which is the actual number of days in such period of less than 365 days 10. Base Rent was set forth in Sublease § 5(a)(ii). 11. Percentage Rent would have been dependent on the performance of the restaurant under Sublease §5(b), which required the tenant to pay Trump OPO a percentage of its gross revenues if revenues exceed a certain level each year. 3 Damages Based on Expenses 12. Under Sublease § 23(d)(i)(1), Landlord may recover damages for costs in recovering, maintaining, returning the Demised Premises to a rentable condition as follows: all damages Landlord may sustain, including an amount equal to all expenses, including reasonable attorneys’ fees and disbursements, incurred by Landlord in recovering possession of the Demised Premises, all expenses incurred for the care, protection and preservation of the Demised Premises while vacant, all expenses incurred in painting, altering or repairing the Demised Premises in order to place the Demised Premises in first-class rentable condition (whether or not the Demised Premises are relet), 13. Under Sublease § 23(d)(i)(2)(x), “in determining rental value all anticipated Reletting Expenses will be taken into account (whether or not the Demised Premises are actually relet, in whole or in part).” 14. Under Sublease Exhibit A, ¶ 99, the definition of Reletting Expenses is as follows: “Reletting Expenses” means such expenses as Landlord may incur in connection with reletting including, but not limited to, legal expenses, reasonable attorneys’ fees and disbursements, brokerage commissions, tenant improvement allowances and credits, all free rent, rent abatements, rent credits and other concessions and inducements, the cost of altering and preparing the Demised Premises for new tenants, advertising expenses, expenses of maintaining the Demised Premises in good condition or for preparing the same for reletting. 15. Trump OPO does not seek damages under Sublease § 23(d)(i)(1). 16. Trump OPO offers no evidence of damages under Sublease § 23(d)(i)(1). TRUMP OPO’S DAMAGES EVIDENCE 17. Aside from costs and legal fees, Trump OPO only seeks damages set forth in the report of Roger Cline. Orowitz Dep. 150:16-151:4. 18. Mr. Cline states that the “claim is for the spread in income between what would have been versus the current plan,” and that is how he “approached methodologically [his] analysis for this case.” Cline Dep. 77:20 – 80:9, 81:1-4. 4 Lost Rent Damages Evidence 19. Mr. Cline proposes damages for lost rent. Cline Report 62. 20. Mr. Cline’s damages for lost rent are not reduced by the aggregate rental value of the Demised Premises. Cline Report at 62. 21. The aggregate rental value of the Demised Premises is the “market value of the lease.” Asadoorian Dep. 15:2-3. 22. The Cline Report does not state a number for the “aggregate rental value of the Demised Premises” as required in Sublease § 23(d)(i)(2)(x). Cline Report at 62. 23. Mr. Cline did not discuss the “aggregate rental value” with any brokers. Cline Dep. 121:7-122:4. 24. Mr. Cline testified he has no understanding of the phrase “aggregate rental value” and does not believe it is a term of art in his experience. Cline Dep. 120:5-16, 122:1-4. 25. Trump OPO used the same remedies provisions, including references to “aggregate rental value,” in its sublease with Jose Andres’ Topo Atrio LLC. Ex. M. at 64-70 (Topo Atrio Sublease). 26. Mr. Cline stated that the section of his report on the costs of mitigation efforts whereby the Demised Premises were converted into banquet space provides calculations for “aggregate rental value.” Cline Dep. 118:4-22. 27. Outside of the Cline Report, Trump OPO does not offer any other evidence of the aggregate rental value of the Demised Premises. David Orowitz Dep. 237:14-238:16, June 2, 2016. 28. Trump OPO does not offer any appraisal of the aggregate rental value of the Demised Premises. Orowitz Dep. 238:1-10. 5 29. Without considering the effects of Mr. Trump’s statements, CZ-National’s rebuttal expert concluded that the aggregate rental value of the Demised Premises was at least as high as the value of the Sublease. Asadoorian Dep. 114:1-6, 48:2-19. 30. Trump OPO agrees that the rental market value for the Demised Premises had not materially changed from when the Sublease was executed. Donald Trump, Jr. Dep. 27:13-17, 49:5-11. 31. No Rent or money of any kind (including Base Rent, Annual Percentage Rent, and Additional Rent) was ever due to Trump OPO under the Sublease. Donald Trump, Jr. Dep. 83:1-14. Accordingly, the Annual Percentage Rent and other items of Additional rent that were payable for the year immediately preceding the cancellation, termination, or re-entry was $0.00. 32. Annual Percentage Rent was based on the restaurant’s performance. 33. Trump OPO relied on Mr. Flores’ internal projections for business decisions. Flores Dep. 1-3. 34. Mr. Flores explained those internal projections were more reliable than other Trump OPO projections because they were used to “manage expectations internally” and show “how we would reasonably do if we didn’t hit it out of the ballpark on all cylinders.” Flores Dep. 145:2-20, 92:5-93:17. 35. Mr. Flores testified that it was important to make his internal projections “as accurate as possible.” Flores Dep. 135:22-136:5. 36. Mr. Flores’ internal projections did not include “heavily weighted” projections for percentage rent because “percentage rent is reliant upon a revenue figure, that you would have to make a guess on. Like, it’s not a guaranteed rent figure, you don’t get it. You just don’t get it out of – you know, that’s not what you’re guaranteed.” Flores Dep. 164:1-165:17. 6 37. Mr. Flores testified that “restaurants are generally risky ventures. And you want the money guarantor to stand behind those obligations.” Flores Dep. 74:7-11. 38. Mr. Cline’s estimates of Annual Percentage Rent were based exclusively on projections from CZ-National in March 2015 (before Mr. Trump’s statements on June 16, 2015), not Mr. Flores’ internal Trump OPO projections. Cline Dep. 263:14-20, 101:17-102:21, 266:16267:17. 39. Mr. Flores said Zakarian’s projections of restaurant performance should be taken “with a grain of salt.” Flores Dep. 196:10-12. 40. Mr. Trump stated that “you never know” how a restaurant will perform. Donald Trump Dep. 37:4-6. Lost Revenue Damages Evidence 41. Mr. Cline proposes damages for the loss of hotel revenue that could have been earned if a “celebrity chef” were operating in the hotel. Cline Report at 48. 42. Mr. Cline’s damages for lost hotel revenues are not based on rental amounts that were due under the Sublease. Cline Report at 38. 43. Mr. Cline could not provide at his deposition any data or history of quantifiable improved performance due to a celebrity chef in any other hotel. Cline Dep. 213:12-226:10. 44. Mr. Cline pointed to experience evaluating the general impact of “branding” on hotel revenues, but could not recall having separated the impacts of a hotel’s brand from a restaurant’s brand in the past. Cline Dep. 57:14-58:7. 45. Mr. Cline provided no industry studies to quantify how a restaurant brand would enhance other hotel revenues. Cline Dep. 213:12-226:10. 7 46. Mr. Cline had not assessed the impact of the pull-out of Jose Andres or the mitigating impact of BLT Prime in expressing his opinion of the impact on the hotel of losing Mr. Zakarian. Cline Dep. 145:1-147:17. 47. Mr. Cline’s damages for lost hotel revenues did not consider whether the BLT restaurant operating in the hotel is a “celebrity chef” restaurant. Cline Dep. 83:21-84:2. 48. Mr. Cline’s damages for lost hotel revenues were based on Mr. Flores’ internal projections for Trump OPO. 49. After the Sublease was terminated, Mr. Flores only adjusted his internal Trump OPO projections using industry data from Smith Travel Reports (“STAR”). Flores Dep. 182:1184:8. 50. Mr. Flores explained that industry STAR data does not increase revenues based on the presence of a restaurant: No. There’s no metric for doing that. There’s no STAR data I can point to that says, Because you have these restaurants in here you are going to get this – this much more business. So it wasn’t prescriptive. I couldn’t have reasonably projected, you know, the bump in business because of that. Flores Dep. 97:10-16. 51. Mr. Flores’ internal projections for Trump OPO did not assume increased revenues as a result of a celebrity chef restaurant. Flores Dep. 96:20-97:16. 52. Trump OPO did not quantify any increased financial value of having a celebrity chef operating the restaurant in the Demised Premises, compared to a restaurant without a celebrity chef. Orowitz Dep. 62:20-63:5, 86:15-87:2. Mitigation Damages Evidence 53. Mr. Cline proposes damages for losses due to mitigation efforts because he calculates the net effect of the decision to use the Demised Premises as a banquet and meeting space will be a loss for Trump OPO. Cline Dep. 117:21-118:3; Cline Report at 56. 8 54. Mr. Cline could not recall any case in his career in which mitigation efforts actually increased the damages claimed. Cline Dep. 88:16-89:19. 55. Mr. Cline did not inquire whether Trump OPO had any reduced ability to attract a new restaurant for the Demised Premises as a result of Mr. Trump’s political statements because he viewed such impacts as irrelevant. Cline Dep. 137:10-18, 138:6-10. 56. Trump OPO admits that CZ-National’s decision to pull out “will have no effect on the completion and success of this project.” Trump OPO First RFA Responses Nos. 6-7. 57. Trump OPO admits that it did could not know how successful its mitigation efforts would be when the lease was terminated. Orowitz Dep. 156:20-22; Ivanka Trump Dep. 160:21-161:12. 58. At the time Trump OPO filed this action, the hotel’s opening was more than a year away. 59. Trump OPO has not yet opened the hotel. 60. Mr. Cline testified that “I believe their choice was either to replace the celebrity chef restauranteur Zakarian with someone of his ilk, with a sublease of similar terms, or convert the space to banquet space, which is the strategy they ultimately decided upon because it was impossible to undertake the former.” Cline Dep. 134: 6-12. 61. There were multiple opportunities for a restaurant or chef to operate a restaurant in the Demised Premises, under either a lease or a management agreement. Pollak Dep. 95:1-3. 62. Trump OPO did not offer any “monetary inducements,” “lower rent,” or “allowances” to attract a new restaurant for the Demised Premises. Donald Trump, Jr. Dep. 107:1-109:17. 63. Trump OPO instructed its agents to only pursue a lease arrangement to fill the Demised Premises with another restaurant. Pollak Dep. 89:4-21; Cline Dep. 122:14-123:22. 9 64. According to Ivanka Trump, “prestigious restaurants are … much more inclined towards management contracts. Which makes the hurdle of getting a lease much higher.” Ivanka Trump Dep. 162:17-21. 65. It would have been easier to pursue a management agreement to fill the Demised Premises. Pollak Dep. 95:20-96:12. 66. Most of the restaurants in the Trump Organization’s hotels operate under management agreements. Donald Trump, Jr. Dep 15:11-14. 67. Mr. Cline assumed that it was “impossible” to get a replacement sublease with a “celebrity-chef restauranteur” with “essentially the same economic terms.” Cline Dep. 122: 12123: 20. 68. Under a management agreement, a hotel owner receives a larger share of the restaurant’s profits. Flores Dep. 34:16-20. 69. Trump OPO filled the space vacated by Jose Andres with BLT under a management agreement. Pollak Dep. 96:13-16; Donald Trump, Jr. Dep. 42:2-7. 70. Trump OPO has not re-let the Demised Premises or engaged any restaurant to operate in the Demised Premises. 71. By August 2015, Trump OPO had decided to convert the Demised Premises to meeting and banquet space, rather than to continue trying to re-let the space. Pollak Dep. 123:12-15. 72. It is possible that Trump OPO may still convert the Demised Premises into another restaurant in future years. Ivanka Trump Dep. 144:13-16; Cline Report at 57. 10 OTHER FACTS NOT IN DISPUTE 73. The Old Post Office Pavilion, located at 1100 Pennsylvania Avenue, N.W., Washington, D.C., was built in 1899 and served as the city’s main post office until 1914. Compl. ¶ 6. 74. In 2013 the U.S. General Services Administration entered into a lease agreement with Trump OPO under which Trump OPO agreed to spend $200 million to convert the building into a luxury hotel. Compl.”) ¶ 6. 75. In February 2015, CZ-National and Trump OPO entered into the Sublease for approximately 9,344 square feet in the northwest corner of the hotel (the “Demised Premises”) for a twenty-year term. Sublease at pp. 1-2. 76. The Demised Premises space was outward facing, with an entrance on Pennsylvania Avenue. 77. CZ-National expected it would be a “neighborhood” restaurant, catering much more to people coming from the surrounding businesses and the D.C. community than to hotel guests. Zakarian Dep. 61:21-62:5, 63:9-17. 78. CZ-National agreed to “use and occupy the Demised Premises for a first-class, in all respects, restaurant.” Sublease § 4. 79. The Sublease requires that CZ-National “hire and maintain reasonably adequate personnel for the efficient service of its customers.” Sublease § 36(d). 80. The Sublease guarantees to CZ-National the right to the quiet enjoyment of the Demised Premises. Sublease § 31. 81. In reliance on the Sublease, CZ-National incurred substantial expenses on the build-out of the Demised Premises and otherwise making preparations to operate a first-class restaurant. Ivanka Trump Dep. 37:10-38:22. 11 82. The hotel and Trump OPO were closely identified with Mr. Trump. Donald Trump Jr. Dep. 93:10-15; Zakarian Dep. 307:9-15. 83. Mr. Trump is an officer of Trump OPO. 84. Mr. Trump has a substantial stake (directly or indirectly) in Trump OPO. 85. On June 16, 2015, during his presidential campaign announcement speech, Mr. Trump, made the following comments regarding Mexican immigrants: “When Mexico sends its people, they’re not sending their best…. They’re sending people that have lots of problems, and they’re bringing those problems with [them]. They’re bringing drugs. They’re bringing crime. They’re rapists.” Trump OPO First RFA Response No. 1. 86. Numerous companies – including Macy’s, NBC, Serta, NASCAR, and Univision – terminated relationships with Trump Organization businesses in the United States and beyond in response to Mr. Trump’s statements. Dep. Ex. 161 at 3; Donald Trump Dep. 57:5-9. 87. On July 6, 2015, Mr. Trump issued a written statement asserting: “The Mexican Government is forcing their most unwanted people into the United States. They are, in many cases, criminals, drug dealers, rapists, etc. . . . Likewise, tremendous infectious disease is pouring across the border. The United States has become a dumping ground for Mexico and, in fact, for many other parts of the world.” Dep. Ex. 161 at 2-3. 88. Mr. Trump, when asked whether he considered the impact his statements would have on tenants at Trump OPO, said “No. No, I didn’t. I didn’t at all.” Donald Trump Dep. 55:10-14. 89. On July 8, 2015, Jose Andres announced that he would not move forward with the restaurant he had planned to open in the Trump OPO hotel: Donald Trump’s recent statements disparaging immigrants make it impossible for my company and I to move forward with opening a successful Spanish restaurant in Trump International’s upcoming hotel in Washington, D.C. More than half of my team is Hispanic, as are many of our guests. And, as a proud Spanish 12 immigrant and recently naturalized American citizen myself, I believe that every human being deserves respect, regardless of immigration status. Emily Heil, Jose Andres backs out of restaurant in Donald Trump’s hotel, THE WASHINGTON POST, July 8, 2015, https://www.washingtonpost.com/news/reliablesource/wp/2015/07/08/jose-andres-backs-out-of-restaurant-in-donald-trumps-hotel/. 90. Mr. Zakarian reached out to Donald Trump, Jr. and asked him to persuade his father to retract or at least clarify his statements. Zakarian Dep. 240:22 – 241:19; Donald Trump, Jr. Dep. 71:16 – 72:7. 91. Mr. Trump, Jr. made clear that Mr. Trump would not correct his statements or apologize. Zakarian Dep. 240:22 – 241:19; Donald Trump, Jr. Dep. 71:16 – 72:7. 92. On July 9, 2015, Geoffrey Zakarian announced that CZ-National also would not move forward with its planned restaurant in the new Trump OPO hotel: The recent statements surrounding Mexican immigrants by Donald Trump do not in any way align with my personal core values. In light of this, I am unable to move forward with a restaurant in the Trump International Hotel, slated to open in Washington, D.C.’s Federal Post Office building. Zakarian Hospitality employs many immigrants from nations all over the world, and I look forward to continuing this business culture in my future restaurants. We are a nation built from immigrants, my family included. Dep. Ex. 162 at 1. 93. Trump OPO sent CZ-National a letter citing Mr. Zakarian’s statements and demanding that CZ-National move forward and open a first-class restaurant under the Sublease. Dep. Ex. 163. 94. CZ-National responded by notifying Trump OPO that it was exercising its right to terminate the Sublease based on Trump OPO’s material and incurable breach of the covenant of good faith and fair dealing. Dep. Ex. 52. 95. Trump OPO sent CZ-National a Cancellation Notice on August 3, 2015, the same day this action was filed. Compl. ¶ 37. 13 96. Ivanka Trump described the decision to file this action as “it was just the natural – a natural conclusion. . . . We had to enforce our rights.” Ivanka Trump Dep. 159:9-13. 97. Trump OPO drew down the entire proceeds of the letter of credit posted as security under the Sublease. Orowitz Dep. 161:18-21; Dep. Ex. 165. 98. Trump OPO submitted a certification that it was entitled to the entire proceeds of the letter of credit. Orowitz Dep. 161:18-21; Dep. Ex. 165. 99. Mr. Trump personally signed the certification to draw down the letter of credit. Donald Trump Dep. 96:4-18; Dep. Ex. 165 at 6-7. 100. Mr. Trump did absolutely nothing to assure himself that his certification was accurate. Donald Trump Dep. 98:5-16, 99:12-16; 99:17-100:1, 100:20-101:1. Dated: July 19, 2016 Respectfully submitted, /s/ Deborah B. Baum Deborah B. Baum (D.C. Bar No. 393019) Email: deborah.baum@pillsburylaw.com Alvin Dunn (D.C. Bar No. 423229) Email: alvin.dunn@pillsburylaw.com Adya S. Baker (D.C. Bar No. 1025477) Email: adya.baker@pillsburylaw.com PILLSBURY WINTHROP SHAW PITTMAN LLP 1200 Seventeenth Street, N.W. Washington, D.C. 20036 Tel: (202) 663-8000 Fax: (202) 663-8007 Counsel for CZ-National, LLC. and BVS Acquisition Co., LLC 14 IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA CIVIL DIVISION TRUMP OLD POST OFFICE LLC, Plaintiff, vs. CZ-NATIONAL, LLC AND BVS ACQUISITION CO., LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) Civil Action No. 2015 CA 005890 B Judge Brian F. Holeman Next Event: Motions Decided: August 31, 2016 DEFENDANTS’ MEMORANDUM IN SUPPORT OF THEIR MOTION FOR PARTIAL SUMMARY JUDGMENT Table of Contents Page INTRODUCTION AND SUMMARY OF ARGUMENT ..............................................................1 FACTUAL BACKGROUND ..........................................................................................................3 ARGUMENT .................................................................................................................................13 I. TRUMP OPO CANNOT RECOVER BASE RENT OR PERCENTAGE RENT FROM ZAKARIAN UNDER THE SUBLEASE OR DISTRICT LAW ..........................13 A. TRUMP OPO’S CLAIM FOR LOST RENT IS BARRED BY THE SUBLEASE ...........................................................................................................13 B. THERE IS NO BASIS FOR TRUMP OPO’S CLAIM FOR LOST ANNUAL PERCENTAGE RENT ........................................................................18 II. TRUMP OPO’S DAMAGES CLAIM BASED ON THE ALLEGED IMPACT THE ZAKARIAN RESTAURANT WOULD HAVE HAD ON THE HOTEL’S OCCUPANCY RATE AND ROOM RATE IS UNDULY SPECULATIVE AS A MATTER OF LAW ...........................................................................................................22 III. TRUMP OPO CANNOT RECOVER DAMAGES BASED ON ITS ALLEGED MITIGATION....................................................................................................................25 CONCLUSION ..............................................................................................................................26 REQUEST FOR A HEARING ......................................................................................................26 i Table of Authorities Cases Adenariwo v. FMC, 808 F.3d 74 (D.C. Cir. 2015) ............................................................................................ 25 Ahan v. Grammas, 2004 Md. Cir. Ct. LEXIS 15 (Md. Cir. Ct. 2004)....................................................... 21, 24 Auger v. Tasea Inv. Co., 676 A.2d 18 (D.C. 1996) .................................................................................................. 14 Bldg. Serv. Local 32B-J Pension Fund v. 101 L.P., 2014 NY Slip Op 1544, 115 A.D.3d 469, 981 N.Y.S.2d 682 (App. Div. 2014) .............. 15 Blinds to Go (U.S.), Inc. v. Times Plaza Dev., LP, 88 A.D.3d 838 (N.Y. App. 2011) ..................................................................................... 24 Ebasco Services, Inc. v. Pa. Power & Light Co., 460 F. Supp. 163 (E.D. Pa. 1978) ..................................................................................... 15 Hart v. Vt. Inv. Ltd. P’ship, 667 A.2d 578 (D.C. 1995) .................................................................................... 14, 15, 18 Hill v. Republic of Iraq, 328 F.3d 680 (2003) .................................................................................................... 20, 24 KiSKA Constr. Corp., U.S.A. v. Wash. Metro. Area Transit Auth., 321 F.3d 1151 (D.C. Cir. 2003) ........................................................................................ 18 Lennon v. United States Theatre Corp., 920 F.2d 996 (D.C. App. 1990) .................................................................................. 25, 26 McDevitt & St. Co. v. Marriott Corp., 713 F. Supp. 906 (E.D. Va. 1989) .............................................................................. 21, 24 River Ridge Living Ctr., LLC v. ADL Data Sys., Inc., 2012 NY Slip Op 6066, 98 A.D.3d 724, 950 N.Y.S.2d 179 (App. Div. 2012) ................ 15 Samaritan Inns, Inc. v. District of Columbia, 325 U.S. App. D.C. 19, 114 F.3d 1227 (D.C. Cir. 1997) ................................................. 20 Sayan v. Riggs Nat. Bank of Washington, D.C., 544 A.2d 267 (D.C. 1988) ................................................................................................ 13 Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000).............................................................................................. 20 St. Paul at Chase Corp. v. Manufacturers Life Ins. Co., 278 A.2d 12 (Md. 1971) ............................................................................................. 21, 24 Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Haw. 286, 141 P.3d 459 (2006) ................................................................................. 15 ii Steuart Inv. Co. v. Meyer Grp., 61 A.3d 1227 (D.C. App. 2013)........................................................................................ 17 Travelers Indem. Co. v. United Food & Commer. Workers Int’l Union, 770 A.2d 978 (D.C. 2001) ................................................................................................ 13 Wood v. Day, 273 U.S. App. D.C. 343, 859 F.2d 1490 (D.C. Cir. 1988) ............................................... 24 Woonsocket Shopping Ctr., Ltd. Pshp. v. Wonder Props., 1996 Mass. Super. LEXIS 706 (Feb. 23, 1996) .......................................................... 17, 18 Rules and Regulations D.C. Superior Court Rules of Civil Procedure Rule 56 .............................................................................................................................. 13 Rule 56(c).......................................................................................................................... 13 Federal Rules of Civil Procedure Rule 30(b)(6) ................................................................................................................. 6, 23 Other Authorities Emily Heil, Jose Andres backs out of restaurant in Donald Trump’s hotel, THE WASHINGTON POST (July 8, 2015), https://www.washingtonpost.com/news/reliablesource/wp/2015/07/08/jose-andres-backs-out-of-restaurant-in-donaldtrumps-hotel/ ....................................................................................................................... 5 Hunter Walker, Donald Trump just released an epic statement raging against Mexican immigrants and ‘disease,’ BUSINESS INSIDER (July 6, 2015) ............................... 4 Missy Frederick, Geoffrey Zakarian Pulls Out Of Trump Hotel Project, WASHINGTON DC EATER (July 9, 2015) ............................................................................. 5 iii Defendants CZ-National, LLC (“CZ-National” or “Zakarian”) and BVS Acquisition Co., LLC (“BVS”), by counsel, hereby submit this Memorandum in Support of their Motion for Partial Summary Judgment. INTRODUCTION AND SUMMARY OF ARGUMENT Zakarian expects to prove at trial that Plaintiff Trump Old Post Office LLC (“Trump OPO”) breached its duty of good faith and fair dealing when its President, Donald J. Trump, made inflammatory comments about immigrants in pursuit of his political career, admittedly without considering the impact those statements would have on his tenant’s right (and obligation) under the Sublease to operate a first-class restaurant in the hotel that will bear Mr. Trump’s name. (As Mr. Trump testified when asked whether, at the time, he considered the impact that these statements would have on current or future tenants, he answered: “No. No, I didn’t. I didn’t at all.” Ex. A, Excerpts from Donald Trump Dep. 55:10-14, July 16, 2016 (“Donald Trump Dep.”). But Zakarian does not seek summary judgment on this issue because, objectively viewed, there are likely material facts in dispute as to whether the circumstances surrounding the termination of the Sublease justified termination. The issue that can, and should, be decided as a matter of law, however, is the question of damages, which is the only remedy Trump OPO seeks. Not one of the facts supporting the damages claimed is in dispute. The problem for Trump OPO is that it seeks damages under a formulation that is entirely inconsistent with the formulation agreed to by the parties in the Sublease, no doubt because there is no evidence of any of the kinds of damages that are allowed under the Sublease – or under District of Columbia law. Not only are the damages sought inconsistent with the Sublease, and with District of Columbia precedent that refers the Landlord to the language of the lease for recovery of lost rent, but also, based on Trump OPO’s own witnesses’ undisputed testimony, the basis for the calculations could not possibly support a damages award as a matter of law. Trump OPO decided to sue (reflexively, it would appear) almost immediately after Zakarian announced it was terminating the Sublease. As Ivanka Trump explained, when asked 1 whose decision it was to file suit, “it was just the natural – a natural conclusion. . . . We had to enforce our rights.” Ex. B, Excerpts from Ivanka Trump Dep. 159:9-13, June 9, 2016 (“Ivanka Trump Dep.”). While the Sublease’s Remedies section gives Trump OPO the right to elect to sue immediately upon an alleged default by the Tenant, in that circumstance, the Sublease is quite specific as to in terms of lost rent: Trump OPO is only entitled to recover a lump sum equal to the excess (if any) of the rent payable for the remainder of the Sublease’s term over the market rent for that same period. In other words, if the market has fallen materially relative to what Trump OPO would have obtained under the Sublease, Trump OPO is entitled to project out that difference over the remaining term of the Sublease – effectively assuming mitigation for the life of the Sublease at a market rate as of the time of the termination. But Trump OPO presented no evidence that the market rent had fallen, and indeed, Donald Trump, Jr., conceded that the market had not changed. Ex. C, Excerpts from Donald Trump, Jr. Dep. 27:13-17, 49:5-11, June 1, 2016 (“Donald Trump, Jr. Dep.”). As an alternative, the Sublease gave Trump OPO the option to wait and sue (as often as it chooses) as rent comes due under the Sublease, and after its actual net losses are established, crediting Zakarian for whatever rent Trump OPO actually recovered through mitigation. Trump OPO has conceded that it seeks no damages beyond the approximately $14 million described in the report of its expert, Roger Cline. Mr. Cline proposes three classes of damages, none of which is allowed under either the Sublease or District of Columbia law: (a) lost rent (roughly $8 million), but without reducing it for market rent at the time of termination and presenting no evidence as to what that market rent was, and improperly including Annual Percentage Rent, which the Sublease does not allow under these circumstances; (b) alleged lost hotel revenues (roughly $5 million) from higher room rates and occupancy rates that Trump OPO claims it would have garnered if a Zakarian restaurant were in the hotel, but with no data whatsoever to back up this projection; and (c) roughly $1 million, which Trump OPO claims are additional damages resulting from its mitigation efforts – in short, a sort of “reverse mitigation” – an oxymoronic legal concept that is without precedent. 2 Various undisputed facts, together with the plain language of both the Sublease and Mr. Cline’s report, leave nothing for the Court to decide at trial as far as damages are concerned. Zakarian and BVS, therefore, seek partial summary judgment on Trump OPO’s damages claim. FACTUAL BACKGROUND The Old Post Office Pavilion, located at 1100 Pennsylvania Avenue, N.W., Washington, D.C., was built in 1899 and served as the city’s main post office until 1914. The building had many uses over the years and was nearly demolished, but in 2013 the U.S. General Services Administration entered into a lease agreement with Trump OPO under which Trump OPO agreed to spend $200 million to convert the building into a luxury hotel. Complaint (“Compl.”) ¶ 6. In November 2014, Trump OPO entered into a sublease with Jose Andres’s TOPO Atrio, LLC to operate a restaurant in the hotel’s central atrium. In February 2015, Zakarian and Trump OPO entered into another agreement of sublease, whereby Zakarian agreed to sublease approximately 9,344 square feet in the northwest corner of the hotel (the “Demised Premises”) for a twenty-year term. Ex. D, Agreement of Sublease Dated February 19, 2015, Between Trump Old Post Office LLC and CZ-National, LLC (“Sublease”) at 1-2. That space was outward facing, with an entrance on Pennsylvania Avenue. Zakarian expected it would be a “neighborhood” restaurant, catering much more to people coming from the surrounding businesses and the D.C. community than to hotel guests. See Ex. E, Excerpts from Geoffrey Zakarian Dep. 61:21–62:5, 63:9-17, Apr. 28, 2016 (“Zakarian Dep.”). Under the Sublease, Zakarian agreed to “use and occupy the Demised Premises for a first-class, in all respects, restaurant.” Sublease § 4. The Sublease requires that Zakarian “hire and maintain reasonably adequate personnel for the efficient service of its customers.” Sublease § 36(d). The Sublease also guarantees to Zakarian the right to the quiet enjoyment of the Demised Premises. Sublease § 31. In reliance on the Sublease, Zakarian incurred substantial expenses on the build-out of the Demised Premises and otherwise making preparations to operate a first-class restaurant in 3 premises that would be closely associated with Trump OPO’s brand, and particularly that of its President, Mr. Trump. Zakarian Dep. 307:9-15; Ivanka Trump Dep. 37:10–38:22; Donald Trump Jr. Dep. 93:10-15. On June 16, 2015, during his presidential campaign announcement speech, Mr. Trump, an officer of Trump OPO who has a substantial stake (directly or indirectly) in Trump OPO and is closely identified with Trump OPO, made the following inflammatory comments regarding Mexican immigrants: “When Mexico sends its people, they’re not sending their best…. They’re sending people that have lots of problems, and they’re bringing those problems with [them]. They’re bringing drugs. They’re bringing crime. They’re rapists.” Ex. F, Plaintiff Trump Old Post Office LLC’s Reponses to Defendants’ First Set of Requests for Admission, Request No. 1 (“Trump OPO First RFA Responses”). On July 6, 2015, after many had called on him to retract his statements, Mr. Trump instead doubled down. He issued a written statement in which he set forth the statements he made regarding Mexican immigrants during his presidential campaign announcement speech, reaffirmed those statements, and went further: “The Mexican Government is forcing their most unwanted people into the United States. They are, in many cases, criminals, drug dealers, rapists, etc. . . . Likewise, tremendous infectious disease is pouring across the border. The United States has become a dumping ground for Mexico and, in fact, for many other parts of the world.” Ex. G, Excerpts from David Orowitz Dep. 123:3-11, June 2, 2016 (“Orowitz Dep.”); Dep. Ex. 161, Hunter Walker, Donald Trump just released an epic statement raging against Mexican immigrants and ‘disease,’ BUSINESS INSIDER (July 6, 2015). In direct response to these statements, numerous companies – including NBC, NASCAR, Univision, Serta, and Macy’s – terminated their relationships with Trump businesses in the United States and beyond. Dep. Ex. 161 at 3; Donald Trump Dep. 57:5-9. On July 8, 2015, Jose Andres announced that he would not move forward with the restaurant he had planned to open in the Trump OPO hotel: Donald Trump’s recent statements disparaging immigrants make it impossible for my company and I to move forward with opening a successful Spanish restaurant in Trump International’s upcoming 4 hotel in Washington, D.C. More than half of my team is Hispanic, as are many of our guests. And, as a proud Spanish immigrant and recently naturalized American citizen myself, I believe that every human being deserves respect, regardless of immigration status. Emily Heil, Jose Andres backs out of restaurant in Donald Trump’s hotel, THE WASHINGTON POST (July 8, 2015), https://www.washingtonpost.com/news/reliable-source/wp/2015/07/08/joseandres-backs-out-of-restaurant-in-donald-trumps-hotel/. All eyes were then on Zakarian. Geoffrey Zakarian reached out to Donald Trump, Jr. (“Mr. Trump, Jr.”), his main contact at Trump OPO, and asked him to persuade his father to retract or at least clarify his statements regarding Mexican immigrants. But Mr. Trump, Jr. made clear there was no hope of that. Trump, Jr. Dep. 71:16–72:7; Zakarian Dep. 240:22–241:19. On July 9, 2015, Mr. Zakarian announced that he also would not move forward with his planned restaurant in the new Trump OPO hotel: The recent statements surrounding Mexican immigrants by Donald Trump do not in any way align with my personal core values. In light of this, I am unable to move forward with a restaurant in the Trump International Hotel, slated to open in Washington, D.C.'s Federal Post Office building. Zakarian Hospitality employs many immigrants from nations all over the world, and I look forward to continuing this business culture in my future restaurants. We are a nation built from immigrants, my family included. Dep. Ex. 162, Missy Frederick, Geoffrey Zakarian Pulls Out Of Trump Hotel Project, WASHINGTON DC EATER (July 9, 2015); Orowitz Dep. 148:19-149:15. Trump OPO responded by stating, among other things, that Zakarian’s decision to pull out “will have no effect on the completion and success of this project.” Trump OPO First RFA Responses, Request No. 6. Then came the legal letters. Trump OPO sent Zakarian a letter citing Mr. Zakarian’s statements and demanding that Zakarian move forward and open a first-class restaurant under the Sublease. Dep. Ex. 163, Letter from D. Trump, Jr. to Zakarian (July 10 2015). Zakarian responded by notifying Trump OPO that it was exercising its right to terminate the Sublease based on Trump OPO’s material and incurable breach of the covenant of good faith and fair dealing. Dep. Ex. 52, Letter from D. Baum to D. Trump, Jr. (July 17, 2015). Trump OPO sent Zakarian a Cancellation Notice on August 3, 2015, and filed this action the same day. Compl. ¶ 37. Trump OPO also drew down the entire proceeds of the letter of credit that Zakarian had 5 posted as security. Orowitz Dep. 161:18-21; Dep. Ex. 165, Letter of Credit Draw Documents. As required by the letter of credit, Trump OPO submitted a certification that it was entitled to the entire proceeds. That certification was signed by Mr. Trump. Donald Trump Dep. 96:4-18; Dep. Ex. 165 at 6-7. Although Mr. Trump conceded that no rent was yet due under the Sublease, and he had no idea how much Trump OPO was owed in the way of damages for the alleged breach (nor could he have known as the extent of any mitigation was as yet unknowable), Mr. Trump did absolutely nothing independently to assure himself that his certification to the bank was accurate. Donald Trump Dep. 98:5-16, 99:12-16; 99:17-100:1 (“I relied on my attorneys”), 100:20-101:1. David Orowitz, Trump OPO’s Rule 30(b)(6) corporate designee acknowledged that Trump OPO could not have known at that time how successful its mitigation efforts would be. Orowitz Dep. 156:20-22. This motion for partial summary judgment concerns the damages that Trump OPO alleges arose out of those circumstances. It rests on facts that are not in dispute and on unremarkable principles of law: • After both Jose Andres and Mr. Zakarian announced they would not be moving forward with restaurants at the new hotel, Trump OPO quickly agreed with BLT Prime to establish and operate a restaurant in the central “Cortile” space within the hotel, which was the space Jose Andres had agreed to lease. The contract with BLT was a management agreement – not a Sublease. Ex. H, Excerpts from Jeffrey Pollak Dep. 96:13-16, May 19, 2016 (“Pollak Dep.”); Donald Trump, Jr. Dep 42:2-7. Under a management agreement, the hotel operator essentially owns the restaurant business and pays a percentage to the restaurant operator – in many cases a celebrity chef – to operate the restaurant. Most of the restaurants in the Trump Organization’s other hotels are operated under management agreements; and under a management agreement the hotel owner gets a much larger share of the restaurant’s upside if the restaurant is successful. Donald Trump, Jr. Dep 15:11-14; Ex. I, Excerpts from Raymond Flores Dep. 34:16-20, May 3, 2016 (“Flores Dep.”). 6 • Trump OPO briefly considered putting a new restaurant in the Demised Premises but was only willing to consider a Sublease arrangement. Pollak Dep. 89:4-21, 95:1-3, 95:20–96:12. Trump OPO was not willing to consider a management agreement, which would have been easier to obtain with a restaurant operator. As Ivanka Trump explained: “prestigious restaurants are … much more inclined towards management contracts. Which makes the hurdle of getting a lease much higher.” Ivanka Trump Dep. 162:17-21. • In August 2015, just over a month after Mr. Zakarian announced he was not going to proceed, Trump OPO decided to convert the Demised Premises to additional meeting and banquet space, rather than to continue trying to re-let the space or to secure a management deal with a restaurant operator complementary to BLT Prime. Pollak Dep. 123:12-15. Trump OPO acknowledges that it is of course possible that Trump OPO may decide at some point in the next twenty years to re-let the space to another restaurant. Ivanka Trump Dep. 144:13-16. • The Sublease addresses specifically and in detail the types of monetary damages that Trump OPO may recover from Zakarian if Zakarian defaults under the Sublease. Sublease § 23. • Article 23 addresses Remedies, and Section 23(d) specifically addresses the remedy of Monetary Damages. Section 23(d) first describes Trump OPO’s right to recover all damages actually incurred in connection with the process of recovering possession and re-letting the space. It includes such items as attorneys’ fees incurred in connection with recovering possession, and costs of painting, altering and repairing the space in order to put it in “first-class rentable condition.” Sublease § 23(d)(i)(1). Trump OPO does not seek any damages under that provision. • Sublease Section 23(d)(i)(2) then describes Trump OPO’s right to recover lost rent. It provides Trump OPO two options: (1) Trump OPO can sue right away for a lump sum representing the excess (if any) of the rent payable under the Sublease for the remainder of the term and the rent for that same period based on market rent at the 7 time of termination – in effect, assuming mitigation for the entire term at then-current market rent; or (2) Trump OPO can wait and sue as rent comes due under the Sublease, after the actual net loss of rent is specifically ascertainable, and crediting Zakarian for actual sums received by Trump OPO through mitigation. Section 23(d)(i)(2) states as follows: Landlord may recover from Tenant … either, at the election of Landlord, (x) a sum that, at the time of such cancellation or termination of this Sublease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the positive difference, if any, between (A) the aggregate amount of Base Rent and Additional Rent (including Annual Percentage Rent) that would have been payable by Tenant (conclusively presuming that the Annual Percentage Rent and other items of Additional Rent would be the same as were payable for the year immediately preceding the cancellation, termination or re-entry. . .) for the period commencing with such cancellation or termination of this Sublease or the date of any such re-entry, as the case may be, and ending with the date that would have been the Expiration Date if this Sublease had not so cancelled or terminated or if Landlord had not so re-entered the Demised Premises, minus (B) the aggregate rental value of the Demised Premises for the same period . . . or (y) sums equal to the Base Rent and Additional Rent (including Annual Percentage Rent) that would have been payable by Tenant (as determined pursuant to the same assumptions as used in connection with determining Additional Rent under clause (x) above) had this Sublease not so cancelled or terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor (as provided in this Sublease) following such cancellation or termination or such re-entry until the date that would have been the Expiration Date if this Sublease had not been so cancelled or terminated or if Landlord had not so re-entered the Demised Premises, provided however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting .... Sublease § 23(d)(i)(2) (emphasis in original). • Rent payable under the Sublease has two primary components: Base Rent, which is the fixed amount of rent payable each month once rent starts accruing, Sublease § 5(a); and “Annual Percentage Rent,” which, as is typical for restaurant leases, requires the tenant to pay a percentage of its gross revenues if revenues exceed a certain level each year. Sublease § 5(b). Percentage Rent is, of course, entirely dependent on the performance of the restaurant. As the Sublease damages formula 8 makes clear with respect to Annual Percentage Rent, in calculating damages “Additional Rent,” including “Annual Percentage Rent,” can be recovered, but it will be “conclusively presume[ed]” that “Annual Percentage Rent and other items of Additional Rent would be the same as were payable for the year immediately preceding the cancellation, termination or re-entry.” Sublease § 23(d)(i)(2). In this case, it is not disputed that there was no Rent at all, much less any Annual Percentage Rent or other items of Additional Rent, payable in the year prior to termination. Compl. ¶¶ 37-38. • As the Sublease damages formula also makes clear, if Trump OPO opts to sue for damages immediately, after calculating Base Rent and Additional Rent (including Annual Percentage Rent), Trump OPO must subtract “the aggregate rental value of the Demised Premises for the same period.” Sublease § 23(d)(i)(2)(x). Trump OPO’s Damages Report does not refer to aggregate rental value, and Trump OPO has not put forth any evidence of aggregate rental value. David Orowitz Dep. 237:14– 238:16, June 2, 2016. • Section 23(d) also states that Trump OPO may pursue other damages if it is “lawfully entitled” to them, “in addition to the damages particularly provided above” (but not instead of): Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default of Tenant hereunder. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to prove for and obtain as damages by reason of the termination of this Sublease or re-entry on the Premises for the default of Tenant under this Sublease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved whether or not such amount is greater than, equal to, or less than any of the sums referred to in Subsection 23(c). Sublease § 23(d)(ii). In short, if there are other categories of damages not covered by Section 23(d), Trump OPO may pursue them, but it may not simply supplant the 9 agreed formulation for calculating lost rent. Mr. Trump, who signed the Sublease, had never read this provision of the Sublease. Donald Trump Dep. 40:18–41:4. • Other subsections of Section 23 set forth other remedies, apart from monetary damages, available to Trump OPO, not one of which Trump OPO seeks in this case. • As Trump OPO’s corporate designee testified, the report of Roger Cline, Trump OPO’s expert, sets forth all of the damages Trump OPO seeks in this case (except for Trump OPO’s costs and attorneys’ fees, which Trump OPO would be entitled to collect only if it is the prevailing party). Orowitz Dep. 150:16–151:4. • As to lost rent, Trump OPO concedes (as it must) that no rent has yet become due under the Sublease because the “Rent Commencement Date” was not until at least the fall of 2016. Accordingly, in order to sue immediately, Trump OPO has opted for the formulation that bases monetary damages for lost rent on the excess, if any, of the rent payable under the Sublease over market rent (“aggregate rental value”) for the Demised Premises, under Section § 23(d)(i)(2)(x). • Trump OPO’s Damages Report, however, asserts that Trump OPO is entitled to three categories of damages, none of which is consistent with the clear formulation for the recovery of monetary damages under the Sublease. Mr. Cline explained, however, that his methodology was consistent with what Trump’s counsel told him about the claim in this case when he was first engaged; i.e., that the “claim is for the spread in income between what would have been versus the current plan,” and that is how he “approached methodologically [his] analysis for this case.” Ex. J, Excerpts from Cline Dep. 77:20–80:9, April 26, 2016 (“Cline Dep.”) (Trump’s inside counsel first explained this to him); 81:1-4 (Trump’s outside counsel then reiterated it). He thus developed an analysis with three components of claimed damages: 1. First, Mr. Cline describes approximately $8 million for lost rent due over Sublease term, consisting of both Base Rent and estimated future Annual Percentage Rent. Rather than conclusively presuming Percentage Rent to be zero, as required under the Sublease, the Cline Report uses Zakarian’s financial 10 projections, prepared in March 2015 (before Mr. Trump’s comments), to estimate the Annual Percentage Rent, which is dependent on how the restaurant ultimately might do. Mr. Cline’s estimate is based exclusively on those March 2015 projections, although even Mr. Trump conceded “you never know” how a restaurant will do (Donald Trump Dep. 37:4-6), and Trump OPO’s own analyst said he would take Zakarian’s projections “with a grain of salt” (Flores Dep. 196:10-12). Mr. Cline provides no evidence as to any difference between the rent payable under the Sublease and “aggregate rental value” (or market rent) for the same period. Ex. K, Expert Report of Roger S. Cline at 62 (the “Cline Report”). And Mr. Cline did not ever even discuss the “aggregate rental value” with any brokers. Cline Dep. 121:7–122:4. 2. Trump OPO also seeks approximately $5 million for the alleged loss of 3% increased hotel occupancy plus 3% increased hotel room rate that Mr. Cline estimates would have been generated by the mere presence of Zakarian’s restaurant in the hotel. Cline Report at 38, 48. Mr. Cline provides no historical figures, studies, or data of any kind to support his estimate of the impact a Zakarian restaurant (or any restaurant) would have on a branded Trump hotel (or any hotel). As discussed more fully below, he does consider Trump OPO’s internal projections regarding the hotel’s performance, but the person who prepared those projections admitted that Trump OPO never included in its projections any impact that Zakarian’s restaurant would have on hotel revenues. See Discussion at pp. 19-20 below. 3. Finally (in perhaps the most unique aspect of the “damages” report), Trump OPO seeks approximately $1 million for what it contends were the net losses due to its mitigation efforts. Cline Report at 56. This sum represents the estimated cost of converting the Demised Premises to meeting and banquet space less the expected revenue from the use of the Demised Premises as meeting and banquet space. Cline Report at 50-61. In short, according to Trump OPO (and its expert, Mr. 11 Cline), despite the much-touted business acumen of the Trump organization, the very best it could do with the Demised Premises was to lose $1 million on it over the next twenty years. Other facts related to Trump OPO’s alleged damages are not in dispute. Although there were restauranteurs who, like BLT Prime, were willing to consider entering into a management deal for the Demised Premises (Pollak Dep. 95:1-3) Trump OPO would not consider that. It also did not instruct its brokers to lower the rent, or otherwise sweeten the economics it was seeking under a Sublease to see if others would be willing to consider it: consistent with Mr. Cline’s testimony, Trump OPO looked exclusively for a lease deal with similar economics. Donald Trump, Jr. Dep. 107:1–109:17; Cline Dep. 122:14–123:22. There is no dispute that at the time Trump OPO filed this action, the hotel’s opening was still more than a year away and Trump OPO did not know – indeed, could not know – whether it would be injured by Zakarian’s determination that it could not proceed as planned and, if so, to what extent. Ivanka Trump Dep. 160:21-161:12 (admitting that at the time of suit, Trump OPO did not know whether it could replace the Andres and Zakarian deals); Donald Trump Dep. 99:12-21; Donald Trump, Jr. Dep. 83:1-16 Trump OPO First RFA Responses Nos. 6-7. It was entirely possible that Trump OPO would have rented the Demised Premises to a new tenant that would have provided to Trump OPO consideration beyond the consideration Zakarian had agreed to provide in the Sublease. It was entirely possible as well that Trump OPO’s statement – that Zakarian’s withdrawal from the project would have “no effect on the completion and success of this project” – would turn out to be accurate, or even an understatement of Trump OPO’s ability to manage Zakarian’s withdrawal. Indeed, Trump OPO concedes that it is still possible that at some point within the next twenty years the Demised Premises will be re-let to another restauranteur. Cline Report at 57; Ivanka Trump Dep. 144:13-16. The parties have completed discovery. Zakarian and BVS now bring this motion for partial summary judgment, seeking judgment against Trump OPO on the two counts raised in its Complaint on the ground that even if Trump OPO proves that its cancellation of the Sublease was proper, Trump OPO cannot prove that it has suffered legally recoverable damages. 12 ARGUMENT Under D.C. Superior Court Rule of Civil Procedure 56, summary judgment is proper when the record demonstrates that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. D.C. Sup. Ct. Civ. R. 56(c); Travelers Indem. Co. v. United Food & Commer. Workers Int’l Union, 770 A.2d 978, 985 (D.C. 2001). The Court should grant the motion for summary judgment if the undisputed facts show that “no reasonable [fact-finder] could find for the non-moving party.” Travelers Indem. Co., 770 A.2d at 985. Even if a fact is disputed, the non-moving party must show that the fact is material and that ‘there is sufficient evidence supporting the claimed factual dispute to require a jury or judge to resolve the parties’ differing versions of the truth at trial’” in order to avoid summary judgment. Sayan v. Riggs Nat. Bank of Washington, D.C., 544 A.2d 267, 268 (D.C. 1988). 1 Summary judgment is appropriate here on Trump OPO’s claims because Trump OPO cannot set forth facts demonstrating that it is has suffered damages that would be recoverable under the Sublease or under District of Columbia law. The “lost rent” component of Trump OPO’s damages claim – the most significant component – is entirely inconsistent with the strictly defined formulation for recovery of lost rent when a Landlord brings suit right after an alleged breach. And neither of the other two components – lost hotel revenues and “reverse mitigation” – has any basis in the Sublease or under District of Columbia law. Indeed, under these circumstances, District of Columbia law directs a plaintiff Landlord to follow the damages formulation called for in the remedies section of its lease. I. TRUMP OPO CANNOT RECOVER BASE RENT OR PERCENTAGE RENT FROM ZAKARIAN UNDER THE SUBLEASE OR DISTRICT LAW A. Trump OPO’s Claim for Lost Rent is Barred by the Sublease The bulk of Trump OPO’s damages claim – over $8 million after discounting to present value – is for Base Rent and Annual Percentage Rent that Trump OPO asserts was payable by 1 The Sublease provides that each party waives its right to a trial by jury. Sublease § 27(a). The Sublease provides that it “shall be governed in all respects by the laws of the District of Columbia.” Sublease § 27(b). 13 Zakarian over the Sublease’s 20-year term. Cline Report at 62, Fig. 36. The Base Rent is set forth in the Sublease. Trump OPO’s entire claim for Base Rent and Additional Rent (including Annual Percentage Rent) is barred by the Sublease as well as by District of Columbia law. There can be no question that the remedies provisions of the Sublease should be enforced as written. District of Columbia courts have long held that leases made between sophisticated parties negotiating at arms-length should be enforced according to their terms. See, e.g. Hart v. Vt. Inv. Ltd. P’ship, 667 A.2d 578, 586 (D.C. 1995) (“[G]iven the sophistication of the negotiating parties, and the arm's length bargaining which occurred . . . The lease, at least on these facts, is enforceable according to its terms”); see also Auger v. Tasea Inv. Co., 676 A.2d 18, 20 (D.C. 1996) (“The parties to the agreement were sophisticated businessmen on relatively equal footing. Thus, we are constrained to avoid rewriting contracts entered into by parties with relatively equal bargaining power”). Moreover, to the extent that Trump OPO points to the Sublease’s provision that “additional” damages may also be available if permitted by law, in this circumstance, District of Columbia law points the landlord right back to the parties’ contract (lease) provisions on damages. “District of Columbia law provides a landlord with three options in the event of a wrongful abandonment” by the tenant: First, he may accept the abandonment and thereby terminate the lease. If the landlord does so, the obligation of the tenant to pay future rent ceases, but the tenant is still liable for any damages specified in the contract as a remedy for its breach. Second, the landlord may relet the premises and hold the tenant liable for any deficiency in the rent, without acquiescing in the abandonment. However, “[u]nder District law, ... a lease provision giving the re-entering lessor a right to lost rent is construed as creating a right to damages, subject to the mitigation doctrine.” The landlord's third option is to allow the premises to remain vacant and to hold the tenant for the full rent. . . . Hart v. Vermont Inv. Ltd. Partnership, 667 A.2d 578, 587 (D.C. 1995) (internal citations omitted). Thus, where, as here, a landlord takes back possession of the space/re-enters and terminates the lease, but has not re-let the premises, the landlord’s damages are those “specified in the contract as a remedy for its breach.” Id. 14 Summary judgment is appropriate where, as here, a party’s damages claim is barred by an enforceable contractual limitation. See Ebasco Services, Inc. v. Pa. Power & Light Co., 460 F. Supp. 163 (E.D. Pa. 1978) (Dismissing plaintiff’s claim when the claimed damages were barred by a contractual damages limitation provision); Bldg. Serv. Local 32B-J Pension Fund v. 101 L.P., 2014 NY Slip Op 1544, 115 A.D.3d 469, 981 N.Y.S.2d 682 (App. Div. 2014) (affirming dismissal of landlord’s claim when a lease covenant limited recovery to a damage calculation that did not include lost rent); River Ridge Living Ctr., LLC v. ADL Data Sys., Inc., 2012 NY Slip Op 6066, 98 A.D.3d 724, 950 N.Y.S.2d 179 (App. Div. 2012) (granting partial summary judgment to limit plaintiff’s right of recovery when defendant prima facie established a right to enforce limitation of damages provisions in contract); Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Haw. 286, 141 P.3d 459 (2006) (upholding grant of partial summary judgment when contract barred plaintiff’s damages claim). If Trump OPO properly terminated the Sublease (which Zakarian will refute at trial, but assumes for purposes of this motion) and seeks monetary damages from Zakarian for unpaid rent, the Sublease provides Trump OPO with two options: (1) Trump OPO can seek from Zakarian all of the rent Zakarian would have paid over the term of the Sublease, less the “aggregate rental value” of the Demised Premises for the same term or (2) Trump OPO can wait until the rent becomes due and seek from Zakarian such unpaid rent periodically, subtracting from its claim any rent Trump OPO has obtained by re-letting the Demised Premises. Sublease § 23(d)(i)(2). These options generally track the monetary damages available to a landlord under common law. See Hart v. Vermont Inv. Ltd. Partnership, 667 A.2d at 587. Trump OPO chose the first option and sued immediately. Under the formula set forth in the Sublease, Trump OPO first must calculate “the aggregate amount of Base Rent and Additional Rent (including Annual Percentage Rent) that would have been payable by [Zakarian]” for the remainder of the term of the Sublease, before subtracting “aggregate rental value.” Sublease § 23(d)(i)(2)(x). In so doing, Trump OPO must “conclusively presum[e] that the Annual Percentage Rent and other items of Additional Rent would be the same as were payable for the year immediately preceding the cancellation” of the Sublease by Trump OPO. 15 Id. In short, the Sublease leaves no room for guessing as to the future performance of the restaurant. Any recovery must be based on actual prior performance in the immediately preceding year. Trump OPO has ignored this requirement of the Sublease. There is no dispute that the amount of Annual Percentage Rent and other items of Additional Rent payable for the year immediately preceding the cancellation by Trump OPO is zero. As such, Trump OPO’s damages claim cannot include alleged damages for Annual Percentage Rent or any other item of Additional Rent. Trump OPO therefore is left with a claim for Base Rent, but the Sublease requires that Trump OPO subtract from the Base Rent “the aggregate rental value of the Demised Premises for the same period.” Trump OPO has not done so. The Cline Report in no place addresses “aggregate rental value.” It does not even mention the phrase. Nor does it discuss market rent for the Demised Premises or the rental “value” of the Demised Premises in any respect. Cline did not discuss the matter with any brokers. Cline Dep. 121:7-122:11. Trump OPO has not proffered the separate opinion of a broker or other such professional as to market rents. The only expert testimony in this case regarding “aggregate rental value” is from John Asadoorian, one of Zakarian’s rebuttal expert witnesses, who submitted a report asserting that “aggregate rental value” is “the market value of the lease” at the time of termination, and had not declined since the Sublease was signed (apart from any impact from Mr. Trump’s comments, which Mr. Asadoorian did not attempt to quantify). Ex. L, Excerpts from John Asadoorian Dep. 15:2-3; 48: 2-19, 114:1-6, June 6, 2016 (“Asadoorian Dep.”). Trump OPO’s witnesses actually agree. Donald Trump, Jr. was in charge of leasing for Trump OPO and testified that the Sublease was a market deal and that he did not think the market for the Demised Premises had materially changed between the time that the Sublease was signed and when it was terminated. Donald Trump, Jr. Dep. 27:13-17, 49:5-11. Mr. Cline at his deposition testified that he has no understanding of the phrase “aggregate rental value,” which he asserts is not a defined term in the Sublease and is not a term of art in either the appraisal profession or in his experience. Cline Dep. 120:5-11, 122:1-4. Nevertheless, 16 in an apparent effort to correct this obvious omission of a key element of the damages formulation under the Sublease, Mr. Cline testified in his deposition that (although he never even uses the phrase, nor cites to the provision of the Sublease), the “aggregate rental value” of the Demised Premises is addressed in the section of his report where he addresses the “mitigation” effort of Trump OPO, which Mr. Cline estimates increased – not reduced – Trump OPO’s damages. Yet that section of Mr. Cline’s report does not address the market for the Demised Premises; rather, it addresses Trump OPO’s decision not to rent out the space to a third party and the alleged net negative impact of that decision on Trump OPO. Cline Dep. 118:4-22. The fact that Mr. Cline might not have an understanding of “aggregate rental value” does not mean that the phrase has no meaning and must be ignored. Trump OPO presumably understands the phrase well. Trump OPO used the exact same phrase in the exact same remedies provisions in its Sublease with Jose Andres’s Topo Atrio LLC, which it executed three months before it executed the Sublease with CZ-National. Ex. M, Agreement of Sublease dated November 19, 2014, Between Trump Old Post Office LLC and Topo Atrio LLC at 64-70. In addition, courts have had no difficulty interpreting and applying the phrase “aggregate rental value” in assessing the damages owed – or not owed – to a landlord that cancels a lease due to a tenant’s breach. In Woonsocket Shopping Ctr., Ltd. Pshp. v. Wonder Props., 1996 Mass. Super. LEXIS 706, at *18-19 (Feb. 23, 1996), the court construed a lease provision that is virtually identical to the remedies provisions of the Sublease in this case, and that entitled the plaintiff landlord to the amount of the rent provided under the lease minus the “aggregate rental value” of the premises over that same period. The court found that the phrase “aggregate rental value” “denotes the fair market rental value for the premises for the remainder of the lease term as expressed in a single payment calculated as of the date of reentry” and rejected an alternate interpretation proposed by the plaintiff, even though the lease in Woonsocket, as here, did not define the phrase. Id. at *20-21. 2 2 In a different context, the D.C. Court of Appeals, in an opinion not inconsistent with Woonsocket, had no trouble applying “aggregate rental value” or “aggregate lease value.” Steuart Inv. Co. v. Meyer Grp., 61 A.3d 1227, 1237-38 (D.C. App. 2013). 17 Also as here, the landlord in Woonsocket failed to present any evidence indicating the fair market rental value of the property. The court accordingly found that it could not determine what damages, if any, the plaintiff was entitled to under the lease for rent owed by the defaulting tenant. Id. at 22-23. Trump OPO has provided no evidence that demonstrates the aggregate rental value of the Demised Premises and therefore has failed to meet its burden of demonstrating damages for Rent as required under the Sublease, just as the landlord in Woonsocket failed to meet its burden. Under the Sublease, as agreed by the parties, Trump OPO cannot now, as Cline explains he did, simply calculate “the spread in income between what would have been versus the current plan.” Cline Dep. 79:8–80:9. Nor can Trump OPO use Section 23(d)(ii) of the Sublease to salvage its deficient claim for rent damages by making an end-run around the Sublease’s provisions that set forth with specificity what Trump OPO must show in order to recover lost rent if it sues before rent actually comes due under the Sublease. Section 23(d)(ii) merely allows Trump OPO to seek any other categories of damages to which it may be lawfully entitled “in addition to” the damages allowed in Section 23(d)(i) – it does not permit Trump OPO to completely bypass the agreed manner of seeking lost rent as specified in the Sublease or avoid the agreed consequences of its election to sue immediately rather than wait and determine what damages are actually incurred over the next twenty years. Otherwise, the Sublease’s carefully prescribed dual alternatives would have no meaning. See KiSKA Constr. Corp., U.S.A. v. Wash. Metro. Area Transit Auth., 321 F.3d 1151, 1163 (D.C. Cir. 2003) (“The law requires contracts to be read as a whole, with meaning given to every provision contained therein”). Moreover, even if Trump OPO could “default” to applicable law as a third alternative, under District of Columbia law, as discussed above, where the Tenant “abandons” the premises under a commercial lease and the landlord terminates the lease, the landlord is simply directed to the remedies set forth in the lease. See Hart v. Vermont Inv. Ltd. Partnership, 667 A.2d 578, 587 (D.C. 1995). B. There is No Basis for Trump OPO’s Claim for Lost Annual Percentage Rent Even if it were not explicitly precluded by the language of the Sublease (as demonstrated above), Trump OPO’s claim for Annual Percentage Rent, which is a significant portion of Trump 18 OPO’s alleged lost rent claim, would in any event be barred as a matter of law: Trump OPO cannot set forth facts that would permit any reasonable fact-finder to determine that Trump OPO could establish these damages with the requisite degree of reasonable certainty. Annual Percentage Rent was to be based on the Gross Sales of the proposed new Zakarian restaurant. It is difficult enough to predict the future performance of any business venture. In this case, as multiple witnesses have acknowledged, it is not possible to predict with reasonable certainty the future financial performance of a new restaurant in a new market in a new hotel that itself is in a new market. Trump OPO’s witnesses, starting with Mr. Trump himself, recognized how inherently speculative the future performance of the Zakarian restaurant would be. Donald Trump Dep. 37:4-6 (with restaurants, you “never know how you’re going to do.” “Honestly, you never know.”). To estimate Annual Percentage Rent, Mr. Cline relied solely on projections for the new restaurant’s financial performance that Zakarian had prepared in March 2015, before Mr. Trump announced his presidential campaign and made the statements concerning Mexican immigrants that are at issue in this lawsuit. Cline Dep. 101:17–102:21, 266:16–267:17, 263:14-20. But Mr. Flores, the person responsible for preparing Trump’s internal projections on which Trump OPO relied to make business decisions regarding the Old Post Office project, Flores Dep. 96:1-3, testified that he never looked at, and would never rely on Zakarian’s own projections of his restaurant’s expected performance: he would take them with “a grain of salt.” Flores Dep. 196:10-12. Mr. Flores also went to great lengths to stress how important it was to Trump OPO to obtain a guaranty of the Zakarian Sublease because “restaurants are generally risky ventures. And you want the money guarantor to stand behind those obligations.” Flores Dep. 74:7-11. Remarkably, when asked about the very projections on which Mr. Cline relied, Mr. Flores acknowledged that Trump OPO regularly prepares two sets of financial projections – one 19 for internal use, on which the business people would actually rely, and a “rosier” set for other purposes. 3 As Mr. Flores explained, in his projections percentage rent would not be “heavily weighted” because “percentage rent is reliant upon a revenue figure, that you would have to make a guess on. Like, it’s not a guaranteed rent figure, you don’t get it. You just don’t get it out of – you know, that’s not what you’re guaranteed.” Flores Dep. 164:1–165:17 (emphasis added). Indeed, Mr. Flores compared Zakarian’s projections to what he called Trump OPO’s “Base” projections, which he explained Trump OPO would use for other purposes, where he would “push to be more aggressive,” as opposed to the internal projections, used to “manage expectations internally,” reflecting “how we would reasonably do if we didn’t hit it out of the ballpark on all cylinders.” Flores Dep. 145:2-20; 92:5–93:17. Because Trump OPO cannot establish the Additional Rent that would have been due under the Sublease with reasonable certainty, and indeed its own analyst testified “you would have to make a guess on [it],” (Flores Dep. 165:11-12) summary judgment is appropriate under District of Columbia law. Hill v. Republic of Iraq, 328 F.3d 680, 684 (2003) (applying D.C. law requiring plaintiff to prove the fact of damages for future harm with “reasonable certainty”) (citing Samaritan Inns, Inc. v. District of Columbia, 325 U.S. App. D.C. 19, 114 F.3d 1227, 1235 (D.C. Cir. 1997); see also Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000) (“[A]lthough lost profits need not be proven with ‘mathematical precision,’ they must be ‘capable of measurement based upon known reliable factors without undue speculation.’ Therefore, evidence of lost profits from a new business venture receives greater scrutiny because there is no track record upon which to base an estimate.”). 3 Trump OPO has requested that aspects of the specific testimony on this issue remain confidential under the Protective Order. Without agreeing that the testimony is appropriately designated as confidential, some portions are redacted in the attached exhibits per Trump OPO’s request. If the Court would like to view the entire transcript portions without these minor redactions, Defendants will submit unredacted copies under seal. 20 Neighboring jurisdictions, addressing attempts to recover lost profits from new business ventures, likewise recognize that it is extremely difficult, if not impossible, to prove with reasonable certainty damages from a new business. See Ahan v. Grammas, 2004 Md. Cir. Ct. LEXIS 15, *67-68 (Md. Cir. Ct. 2004) (jury’s damages award relating to a new business overturned because expert testimony was insufficient to establish the projected lost profits with reasonable certainty); St. Paul at Chase Corp. v. Manufacturers Life Ins. Co., 278 A.2d 12 (Md. 1971) (“realization of profits from a new untried venture such as this depends on so many uncertainties that they cannot form a proper element of damage in a contract action”); McDevitt & St. Co. v. Marriott Corp., 713 F. Supp. 906, 933 (E.D. Va. 1989) (a new hotel “is undeniably ‘a speculative venture, the successful operation of which depends upon future bargains, the status of the market, and too many other contingencies to furnish a safeguard in fixing the measure of damages’”). Not only did Mr. Trump concede that “you never know” how a new restaurant will perform, but Trump OPO’s own analyst conceded he would take the very projections upon which Trump’s damages are based “with a grain of salt.” This is the antithesis of “reasonable certainty.” In sum, beyond the fact that the Sublease itself precludes the recovery of estimated future Percentage Rent without an established history of payment, District of Columbia law would prohibit the recovery of future profits under these circumstances – based on the testimony of Trump OPO’s own witnesses. 21 II. TRUMP OPO’S DAMAGES CLAIM BASED ON THE ALLEGED IMPACT THE ZAKARIAN RESTAURANT WOULD HAVE HAD ON THE HOTEL’S OCCUPANCY RATE AND ROOM RATE IS UNDULY SPECULATIVE AS A MATTER OF LAW Nearly $5 million of Trump OPO’s damages claim is based on the positive impact Mr. Cline predicts a Zakarian restaurant would have had on the new hotel’s occupancy rate and room rate over the first five years of the hotel’s operations. Mr. Cline states his opinion as follows: Opinion 3: On the basis of academic research and other studies I have tracked over the years as well as my experience in evaluating the impact of established brands on hotel performance for many years, I estimate conservatively that initially, the average daily rate [sic] at the Hotel will now be at least three percentage points lower and the average room rate three percent lower than would have been the case with the benefit of the branding alliance with Celebrity Chef/Restaurateur Zakarian. These negative impacts are expected to decline to zero over the first five years of operation[.] Cline Report at 38. Mr. Cline, however, could not provide at his deposition any data whatsoever or history of quantifiable improved performance due to a celebrity chef in any other hotel. Cline Dep. 213:12–226:10. Nor had Mr. Cline yet fully assessed the impact of the pull-out of Jose Andres or the mitigating impact of BLT Prime in expressing his opinion of the impact on the hotel of losing Geoffrey Zakarian. Cline Dep. 145:1–147:17. He had not yet analyzed those two factors as his report was not yet due in the Andres case. Id. Indeed, Mr. Cline did not even know whether the BLT restaurant that will operate within the hotel was a “celebrity chef” restaurant. Cline Dep. 83:21–84:2. There is no factual dispute about what Mr. Cline relied on – and did not rely on – to support his projection of the alleged lost $5 million enhancement to the hotel’s profits. He relied on Mr. Flores’s projections, which actually did not even support any loss of an enhancement to the hotel’s occupancy rate as a result of Mr. Zakarian pulling out of the hotel project. Mr. Flores readily admitted that while he regularly updated his projections for the Old Post Office project and that it was important to make the internal projections “as accurate as possible,” Flores Dep. 135:21-136:5, he never adjusted the projections to show any impact on hotel room rates or occupancy rates based on Zakarian signing, or terminating, the Sublease. Flores Dep. 96:20– 22 97:16; 182:1–184:8 (post-termination, Flores adjusted the rates based solely on industry “STAR” data regarding market trends 4). When asked whether he adjusted the financial projections for the hotel to reflect a higher average daily rate or occupancy rate based on the Sublease having been signed with Zakarian, Mr. Flores explained: No. There’s no metric for doing that. There’s no STAR data I can point to that says, Because you have these restaurants in here you are going to get this – this much more business. So it wasn’t prescriptive. I couldn’t have reasonably projected, you know, the bump in business because of that. Flores Dep. 97:10-16. Likewise, Mr. Orowitz, Trump OPO’s Rule 30(b)(6) corporate designee, testified that Trump OPO did no financial analysis of the potential benefit to the hotel from an Andres restaurant or a Zakarian restaurant. Orowitz Dep. 62:20–63:5, 86:15–87:2. Nor could Mr. Cline point to a single case in which he had broken out the impact on hotel revenues as a result of association with a celebrity chef. Rather, he had previously looked generally at the impact of “branding” on hotel revenues, but could not recall ever having separated it out as between the hotel brand and the restaurant brand. Cline Dep. 57:14–58:7. He relied vaguely on his “experience” in the industry, without a single example of a single hotel that had measured the impact of a celebrity chef on the hotel’s own performance. Nor could he point to a single industry study that even attempted to quantify this alleged enhancement of the restaurant “brand” to the hotel “brand.” Cline Dep. 213:12–226:10. Indeed, Mr. Cline had no evidence from any source anywhere that a 3% increase in occupancy rates would flow from association with a celebrity chef, nor that an incremental 3% increase in room rates would follow, and he could point to no history of a 2% increase or a 4% increase – he presented no data at all on this point, because there is none in the industry, no doubt because the impact, if any, is simply too hard to measure. The general, vague “years of experience” support offered by Mr. Cline – particularly in light of Trump OPO’s testimony that it would never include such a “bump” in its own internal analyses because it could not be “reasonably projected” – is the antithesis of the type of evidence that is required to support a 4 The Smith Travel Reports (or “STAR” data) is acknowledged by both parties to be data on which hotel operators and consultants often rely to assess, among other things, the market of self-selected “comparable” hotels in an operator’s own market. 23 damages claim for lost profits, especially when it is in the context of a brand new untested business in a new market. 5 Nothing in the Sublease suggests that this type of recovery was intended by the parties. Nor is there any support for it as a type of damages otherwise allowable by law. The cases are clear that this kind of testimony and analysis does not even come close to the kind of support that must be presented to recover lost profits – especially for a new venture. For example, in Ahan v. Grammas, 2004 Md. Cir. Ct. LEXIS 15, *67-68, the court ruled that an expert’s reliance on certain financial projections as a matter of law could not support a jury’s verdict awarding damages based on the predicted financial performance of a new business. In this case, Mr. Cline did not even have projections that suggested that the future performance of the new hotel would be impacted by the new Zakarian restaurant. As a matter of law, the “evidence” Mr. Cline cites is woefully insufficient to support a damages award on this element of Trump OPO’s claim with anything approaching reasonable certainty. Summary judgment therefore should be granted regarding this damages claim. Hill v. Republic of Iraq, 328 F.3d 680, 684 (2003) (applying D.C. law requiring that damages cannot be based on “mere speculation or guesswork”) (citing Wood v. Day, 273 U.S. App. D.C. 343, 859 F.2d 1490, 1493 (D.C. Cir. 1988); see also Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000); Ahan v. Grammas, 2004 Md. Cir. Ct. LEXIS 15, *67-68; St. Paul at Chase Corp. v. Manufacturers Life Ins. Co., 278 A.2d 12; McDevitt & St. Co. v. Marriott Corp., 713 F. Supp. at 933. 6 5 Not to mention the potential impact of Mr. Trump’s statements and his candidacy for President on the success of his hotel. 6 The New York case of Blinds to Go (U.S.), Inc. v. Times Plaza Dev., LP, 88 A.D.3d 838, 840 (N.Y. App. 2011), illustrates the problems even an established business can have claiming lost profits for a new branch. There, plaintiff, an operator of a small chain of stores in the New York City area, was seeking lost profits for the loss of a new branch of its retail store, but “although the tenant was not a start-up company … it acknowledged that, when it leased the subject premises, ‘the Brooklyn market was the market we weren’t in at the time.’” Id. The court, reversing a jury award of damages for lost profits because the weight of the evidence presented at trial for lost profits did not support the jury verdict, noted that the new geography, customer base, and even factors like parking would affect the potential success of the new store. 24 III. TRUMP OPO CANNOT RECOVER DAMAGES BASED ON ITS ALLEGED MITIGATION Finally, Trump OPO advances the novel concept that its “mitigation” effort – its decision not to rent out the Demised Premises at all or to use the Demised Premises as restaurant – does not decrease its claimed damages but rather increases them. According to Mr. Cline, Trump OPO’s decision to use the Demised Premises as additional meeting and banquet space will generate additional revenues of approximately $1 million, but construction costs to build out the space to accommodate meetings and banquets will exceed $2 million, such that the “mitigation” increases Trump OPO’s damages claim by more than $1 million. Cline Report at 62; Cline Dep. 117:21-118:3 (net effect of mitigation efforts is to add about $1.1 million to the damages claim). Mr. Cline conceded that he could not recall any case – out of the many cases in which he had testified as to damages – in which the mitigation efforts actually increased the damages claimed. Cline Dep. 88:16–89:19. Moreover, in considering this “mitigation” decision not to rent out the premises, Mr. Cline did not inquire of Trump OPO whether there had been any impact on Trump OPO’s ability to attract a replacement celebrity chef as a result of Mr. Trump’s political comments; if that was in fact the case, Mr. Cline would view it as irrelevant. Cline Dep. 137:10-18; 138:6-10. As a matter of law, mitigation cannot increase a damages claim. In the District of Columbia, “a lease provision giving the re-entering lessor a right to lost rent is construed as creating a right to damages, subject to the mitigation doctrine, i.e., to a requirement that the lessor use ‘reasonable efforts’ to relet.” Lennon v. United States Theatre Corp., 920 F.2d 996, 1000 (D.C. App. 1990). The mitigation doctrine “means that the damages will be computed as the rentals provided for in the lease (plus reletting expenses), less such rentals as the lessor would have received if it had made reasonable efforts.” Id.; see also Adenariwo v. FMC, 808 F.3d 74, 80 (D.C. Cir. 2015) ( “classic examples of mitigation—e.g., procuring a substitute, repairing harm that would otherwise cause consequential losses—involve the injured party taking beneficial steps to prevent further damages.”). The mitigation doctrine contemplates a reduction in the total damages a plaintiff is entitled to, and is considered an affirmative defense 25 to damages by the defendant, not a theory the plaintiff can use to claim more damages. See Lennon, 920 F.2d at 1000. In this case, the only evidence Trump OPO sets forth regarding mitigation shows an effort that increases Trump OPO’s alleged damages. Such damages are not recoverable as a matter of law, and summary judgment should be granted against Trump OPO’s claim for the internally inconsistent concept of “mitigation damages.” CONCLUSION For the foregoing reasons, Zakarian and BVS respectfully request that the Court enter Partial Summary Judgment in their favor on Trump OPO’s claim for damages. REQUEST FOR A HEARING Defendants respectfully request a hearing on its motion for partial summary judgment. Dated: July 19, 2016 Respectfully submitted, /s/ Deborah B. Baum Deborah B. Baum (D.C. Bar No. 393019) Email: deborah.baum@pillsburylaw.com Alvin Dunn (D.C. Bar No. 423229) Email: alvin.dunn@pillsburylaw.com Adya S. Baker (D.C. Bar No. 1025477) Email: adya.baker@pillsburylaw.com PILLSBURY WINTHROP SHAW PITTMAN LLP 1200 Seventeenth Street, N.W. Washington, D.C. 20036 Tel: (202) 663-8000 Fax: (202) 663-8007 Counsel for CZ-National, LLC. and BVS Acquisition Co., LLC 26