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Kallman v. Radioshack Corp.

December 19, 2002


Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 490--Matthew F. Kennelly, Judge.

Before Flaum, Chief Judge, and Harlington Wood, Jr. and Williams, Circuit Judges.

The opinion of the court was delivered by: Williams, Circuit Judge.


In this breach of lease action, the district court ruled that Radioshack was liable for damages stemming from its guaranty of a lease between one of Judith Kallman's companies and Color Tile. In this appeal, Radioshack challenges the district court's ruling that Radioshack is liable for Color Tile's breach, that it is responsible for the cost of repairs to the property, and that it must pay attorneys' fees. Kallman cross-appeals, attacking the district court's ruling that she did not mitigate her damages. We affirm the decision of the district court.


A. Lease interests in the property

This case concerns Color Tile's abandonment of commercial property at 1224-26 Ogden Avenue in Downers Grove, Illinois, and Radioshack's guaranty of Color Tile's lease. An understanding of the history of the series of leases controlling the property is central to resolving Radioshack's claims. In 1959, All-States Ohio, Inc. leased the property to Robert Hall Clothes, Inc. In 1964, Morgan Trust Company gained title to the property, and the Robert Hall lease continued. In 1973, Robert Hall subleased the property to Parknat Properties, Inc., which was controlled by Irwin Kallman. A year later, Parknat subsubleased the property to Color Tile, Inc. Color Tile in turn leased 3,200 square feet of the 8,500-square-foot building to T.J.'s Restaurant and Pancake House, Ltd. Color Tile's sub-sublease with Parknat, dated February 5, 1974, was for a term of 15 years with the option to renew for a ten-year term. At the time it terminated its lease, Color Tile paid $9.85 per square foot monthly to lease the property. Radioshack guarantied all of Color Tile's obligations to Parknat under the lease.

In 1977, Robert Hall, the original lessee, filed for bankruptcy. As a result, Robert Hall's parent company entered into an agreement with all of the owners and subtenants of property leased by Robert Hall. The agreement, dated October 14, 1977, cancelled the Robert Hall lease and transferred Robert Hall's interests to Morgan, the owner of the property, subject to the rights of all the subtenants. Under the agreement, the subtenants (including Parknat) would release Morgan and Robert Hall of their obligations under the subleases if Morgan entered into a new lease with the subtenants. Morgan then entered into a lease with Parkvan Properties, Inc., Parknat's sister company. (It did not enter into a new lease with Parknat.) Notwithstanding the substitution of Parkvan for Robert Hall, Color Tile continued to occupy the premises under the Parknat sub-sublease. In 1988, ten years after Robert Hall declared bankruptcy, Color Tile exercised its option to renew the lease for a term that was to end on April 30, 1999.

In February of 1996, more than three years before its lease was to expire, Color Tile filed for bankruptcy, abandoned the premises, and stopped paying rent. T.J.'s Restaurant remained in possession of its premises when Color Tile defaulted. Judith Kallman *fn1 took over possession of the Color Tile property through her agent and management company, Win Properties, Inc.

B. Kallman's actions to lease the property after Color

Tile vacated Win learned of Color Tile's abandonment of the property on February 15, 1996. In March, Win entered into a month-to-month lease with T.J.'s for its portion of the property. Win also sought the assistance of a real estate broker, Nick Peters, to lease the Color Tile property. In March of 1996, Peters sent Win a marketing proposal that included a review of the property and an analysis of the market conditions. In the proposal Peters suggested a general cleanup and repair of the property and noted that in the property's current unimproved state it would likely rent for between $8-$9 per square foot. In spite of first receiving a marketing proposal from Peters in March, Win did not return the finalized Listing Agreement until July 17, 1996, more than five months after Color Tile vacated the property. Prior to finalizing the agreement, Win's internal leasing department mailed advertisements for the property to 500 brokers and prospective tenants and advertised the property in a national retail housing publication, but no sign was posted on the property and Win did nothing to list the property locally.

After the listing agreement was finalized, Peters put up a sign on the property, sent a brochure to prospective tenants and other brokers, and showed the vacant property to prospective tenants. Among other issues, negotiations with potential tenants focused on the condition of the property and the lease price. In spite of Peters's advice, Win's agreement with Peters instructed him to seek $12 per square foot for the property. Win also decided it would not perform repair work on the property, but would negotiate these and other improvements with prospective tenants along with rent and the lease term as part of general contract negotiations. On October 15, 1998, more than two years after Color Tile abandoned the property, Win finalized a lease with a company named Happiness is Pets for $11 per square foot.

In order to close lease negotiations with Happiness is Pets and finalize a new lease term with T.J.'s, Win made several repairs to the Ogden property. Among other repairs, Win hired contractors to replace the roof, resurface the parking lot, and replace two deteriorated heating, ventilation, and air conditioning (HVAC) units.

C. District court proceedings

Kallman timely initiated this suit against Radioshack as Color Tile's guarantor for costs associated with Color Tile's breach of the lease agreement. Kallman sought damages for lost rent and real estate taxes due under Color Tile's lease obligations and costs for replacement of the roof, HVAC units, and parking lot allegedly neglected by Color Tile in violation ...

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