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NCO Financial Systems, Inc. v. Montgomery Park, LLC

United States Court of Appeals, Fourth Circuit

March 15, 2019

NCO FINANCIAL SYSTEMS, INCORPORATED, now known as EGS Financial Care, Inc., Plaintiff - Appellee,
v.
MONTGOMERY PARK, LLC, Defendant-Appellant.

          Argued: November 1, 2018

          Amended: March 15, 2019

          Appeal from the United States District Court for the District of Maryland, at Baltimore. George L. Russell, III, District Judge. (1:11-cv-01020-GLR)

         ARGUED:

          Howard G. Goldberg, GOLDBERG & BANKS, PC, Baltimore, Maryland, for Appellant.

          Andrew D. Levy, BROWN, GOLDSTEIN & LEVY, LLP, Baltimore, Maryland, for Appellee.

         ON BRIEF:

          Joshua R. Treem, Kevin D. Docherty, Anthony J. May, BROWN, GOLDSTEIN & LEVY, LLP, Baltimore, Maryland, for Appellee.

          Before GREGORY, Chief Judge, and NIEMEYER and HARRIS, Circuit Judges.

          NIEMEYER, CIRCUIT JUDGE

         This case, which involves disputes between parties to a 12-year commercial lease of office space in Baltimore, Maryland, comes to us for a second time. In the prior appeal, we held that NCO Financial Systems, Inc. (the lessee) had failed to properly exercise its right of early termination of the lease agreement between it and Montgomery Park, LLC (the lessor) and had, by failing to pay rent thereafter, breached the agreement. NCO Fin. Sys., Inc. v. Montgomery Park, LLC, 842 F.3d 816, 821-23 (4th Cir. 2016). Accordingly, we remanded the case for further proceedings on Montgomery Park's claim for damages.

         On remand, the district court conducted a bench trial at which it received evidence regarding Montgomery Park's damages and whether Montgomery Park had, as required by the lease agreement, used "reasonable commercial efforts" to mitigate its damages. The court concluded that Montgomery Park failed to use reasonable commercial efforts to mitigate its damages and that this failure was a condition precedent to any damage recovery. It therefore denied Montgomery Park any damages for NCO's breach.

         On appeal, Montgomery Park contends that the district court erred (1) by concluding that the obligation to mitigate damages was a condition precedent to the recovery of any damages and therefore that the failure to satisfy that condition completely barred recovery, rather than merely reduced the amount of recoverable damages, and (2) by concluding that Montgomery Park's obligation to mitigate damages meant that it "was under a contractual duty to give special care and attention" to the space previously leased by NCO and therefore that marketing efforts directed at leasing all vacant spaces in the building were largely irrelevant.

         We agree with Montgomery Park on both points and therefore vacate the district court's judgment and remand for further proceedings consistent with this opinion. First, we conclude that the district court misconstrued the lease agreement and misapplied Maryland law in concluding that Montgomery Park had a duty to "endeavor to re-let the premises and minimize [its] damages as a condition precedent to recovering" against NCO. (Emphasis added). Because the lease agreement's language incorporated the common law mitigation-of-damages doctrine, which holds that a plaintiff cannot recover damages which it could have reasonably avoided, Montgomery Park's recovery should only have been reduced by the amount of rent that NCO could demonstrate would have been recovered by reasonable efforts to re-let the space. Second, we conclude that the district court, in evaluating the commercial reasonableness of Montgomery Park's mitigation efforts, applied the wrong standard. Reasonable commercial efforts to mitigate damages did not require Montgomery Park to favor NCO's space over other vacant space in the building. Rather, commercial reasonableness only required Montgomery Park to reasonably market NCO's space on an equal footing with the other spaces that it was seeking to rent.

         I

         Beginning on March 15, 2003, Montgomery Park leased over 100, 000 square feet of office space to NCO in a building located on Washington Park Boulevard in Baltimore, Maryland. The initial term of the lease was 12 years, but NCO had a limited right to terminate the lease after 8 years, provided that it gave ...


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