Elliot Megdal & Associates v. Daio USA Corp.

Citations: 952 P.2d 886; 87 Haw. 129; 1998 Haw. App. LEXIS 4Docket: 17345

Court: Hawaii Intermediate Court of Appeals; January 30, 1998; Hawaii; State Appellate Court

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Defendant-Appellant Daio USA Corporation and its parent company, Daio Company, Ltd., appeal from an interim judgment by the Circuit Court of the Third Circuit, which held them jointly and severally liable for $108,708.89 in breach of lease damages to Plaintiff-Appellee Elliot Megdal and Associates. The court retained jurisdiction for future damages, including attorneys' fees. The appeal also challenges an August 3, 1993 order that granted Megdal's motion for attorney fees, severance of claims, and certification of the February 18, 1993 judgment as final under Hawai'i Rules of Civil Procedure Rule 54(b).

The underlying case involves a lease agreement dated July 31, 1990, between Megdal (lessor) and Daio USA (lessee), which included a guaranty from Daio Japan. Daio USA assigned the lease to Carnival Carnival, Inc., which subsequently defaulted. After unsuccessful payment demands to both the assignee and defendants, Megdal initiated legal action against Carnival in district court, resulting in a judgment for possession and damages. Subsequently, Megdal filed a complaint in circuit court against the defendants as guarantors, seeking damages that were to be determined. The appellate court concluded that the circuit court erred in certifying the February 18, 1993 judgment as final, leading to dismissal of the appeal for lack of jurisdiction and a remand for further proceedings.

Megdal's motion sought a judgment of $51,529.30 for unpaid rent from July to September 1992, along with $858.82 for prejudgment interest and $13,090.78 for attorney fees. The initial hearing was set for October 6, 1992, but was postponed to October 23, 1992, at the request of Megdal's counsel. On October 22, the Defendants filed a memorandum opposing Megdal’s motion, citing disputes over the rent amount and insufficient time for discovery. On the day of the hearing, Megdal submitted a supplemental memorandum requesting $57,268.80, reflecting a judgment obtained against CC in a separate proceeding, and claimed future rent damages for the remaining thirty-nine months of the Lease. Defendants' counsel did not attend the hearing, leading the circuit court to orally grant Megdal's motion for summary judgment. On November 17, 1992, a written order confirmed that Daio USA and Daio Japan were jointly and severally liable to Megdal for all lease amounts, granting a judgment of $57,268.80 plus attorney fees, totaling $60,673.24, and reserving jurisdiction for future damages. The court partially granted a motion for reconsideration from Defendants, vacating the summary judgment only concerning past damages, while affirming liability. A continued hearing was scheduled for January 4, 1993, during which Megdal requested an additional $51,440.09 for unpaid rent for October to December 1992. Defendants argued about the adequacy of Megdal's re-renting efforts and presented an affidavit regarding Megdal's refusal to consent to a sublease assignment. At the January 4 hearing, the court granted Megdal's motion for damages accrued through September 30, 1992, while allowing Defendants ten days to provide evidence on mitigation of future damages.

A written order granting Megdal's motion for summary judgment was entered on January 19, 1993, retroactive to January 4, 1993. Defendants appealed various orders related to this motion on January 29, 1993, including the oral order from November 17, 1992, and the December 31, 1992 order. On February 18, 1993, the circuit court issued an "interim judgment" in Megdal's favor for $108,708.89, which covered unpaid rent from October to December 1992, while retaining jurisdiction to determine future damages under the lease, including attorney fees. Defendants filed a second notice of appeal on March 2, 1993. Both appeals were dismissed by the supreme court on June 8, 1993, due to the lack of a final, appealable judgment and the court's retention of jurisdiction, deeming the appeals premature.

Upon remand, Megdal requested an award of attorney fees, severance of claims, and certification of judgment as final under HRCP Rule 54(b). A hearing on this motion took place on June 25, 1993, resulting in the circuit court granting Megdal's motion on August 3, 1993. The court severed Megdal's claims for damages through December 31, 1992, from those after that date, certifying the February 18, 1993 judgment as final. This certification was justified by the lease's duration until December 31, 1995, the resolution of Defendants' liability, and the belief that an appeal could expedite the litigation's conclusion. The subsequent appeal, however, was deemed premature as the court improperly certified the judgment as final. The review standards for HRCP Rule 54(b) certification involve a de novo review of the court's power to certify and an abuse of discretion standard for the court's decision to use that power. HRCP Rule 54(b) allows for final judgment on less than all claims or parties only if there is no just reason for delay and with express direction for such entry.

An order or decision that does not address all claims or the rights and liabilities of all parties does not terminate the action and can be revised until a final judgment is entered. Rule 54(b) allows for immediate appeals in multi-claim or multi-party actions, specifically when (1) multiple claims for relief or at least three parties are involved, and (2) the judgment disposes of at least one claim or all claims by or against at least one party. The court examines whether these requirements are met to authorize certification of finality under HRCP Rule 54(b). 

The Supreme Court has clarified that Rule 54(b) applies only to actions with multiple claims, allowing appeal for claims that are finally decided but not all claims. Guidelines for determining if multiple claims exist rely on whether there are different factual bases for recovery that could be separately enforced. While multiple claims can lead to various recoveries, a single claim may involve multiple legal theories but seeks only one recovery. In this instance, Megdal's complaint against CC for breach of lease, guaranteed by Defendants, presented a single claim because it arose from one factual basis and sought damages from that singular breach, despite Megdal's argument for multiple claims based on varying damages.

Megdal argues that the Lease's requirement for installment payments allows for the separation of claims for past rents from claims for future rents, permitting the circuit court to certify an interim judgment for past damages. However, this position is rejected based on established legal principles. Generally, when a claimant seeks various types of damages from the same facts, an order addressing only some claims cannot be treated as a final judgment under Rule 54(b). Relevant case law supports that alleging multiple damages does not equate to multiple claims; instead, it remains a single claim.

The rule states that a single cause of action arises from the breach of a single, indivisible contract, although separate actions can arise from independent contracts or distinct breaches within a divisible contract. Megdal contends the Lease is divisible due to its installment nature, suggesting the separation of future and past damage claims. This argument is countered by the precedent set in Bolte v. Aits, Inc., which emphasizes the prohibition against splitting a cause of action to prevent multiple lawsuits and excessive litigation costs. It acknowledges, however, that successive suits can be brought for ongoing breaches of a continuing contract if they occur after each breach but before a subsequent breach. This principle undermines Megdal's claim for separate judgment on past damages while future claims remain unresolved.

Under common law, a landlord has three options if a tenant breaches a lease: terminate the tenancy and sue for damages, continue the tenancy and sue for rent as it accrues, or terminate the lease, retake possession, and release the tenant from liability. The Supreme Court held that a landlord who regains possession after lease termination can still seek damages for breach of contract despite releasing the tenant from obligations such as rent payment. In the case involving Megdal, after terminating the lease and taking possession of the property, Megdal's claims shifted from seeking rent to seeking damages for breach of contract. Had Megdal chosen to continue the tenancy, it could have sued periodically for rent. However, by opting to terminate the lease, Megdal created a single breach of contract claim, eliminating the option to pursue monthly rent payments.

The circuit court erred by certifying the judgment as final under HRCP Rule 54(b). According to the U.S. Supreme Court, Rule 54(b) can only be applied if the judgment is final, meaning it must resolve a cognizable claim for relief and dispose of the claim completely. A decision is considered final if it concludes the litigation on the merits and leaves only the execution of the judgment. If the plaintiff retains the right to seek additional damages, the judgment cannot be deemed final, as finality implies no further matters will be addressed by the court beyond execution. Thus, partial summary judgments that address liability but leave damages unresolved are not final or certifiable under Rule 54(b).

A decision that establishes liability without determining damages is not subject to appeal, even if an order is entered under Rule 54(b). There is no significant difference between leaving all damage issues unresolved and leaving a single critical damage issue unresolved. In this case, the circuit court retained jurisdiction after the February 18, 1993 Judgment to assess future damages related to the lease, including attorneys' fees and costs, indicating that the damages issue was not fully resolved. Consequently, the judgment was not final and should not have been certified as such under HRCP Rule 54(b). Since this was not a multiple-claim lawsuit and the circuit court did not completely adjudicate Megdal's damage claim, the certification as final was erroneous, leading to a lack of jurisdiction to review the appeal. The case is remanded to the circuit court for further proceedings. The plaintiff, Elliot Megdal and Associates, sought damages for unpaid lease rent and other charges, along with reasonable attorneys' fees and additional equitable relief.