Germania Real Estate Venture II LLC v. STIR LLC

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
September 28, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2020AP493 Cir. Ct. No. 2015CV5338

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I

GERMANIA REAL ESTATE VENTURE II LLC,

PLAINTIFF-APPELLANT,

V.

STIR LLC,

DEFENDANT-THIRD-PARTY
PLAINTIFF-RESPONDENT,

GERMANIA HISTORIC, LLC,

THIRD-PARTY DEFENDANT-CO-APPELLANT.

APPEAL from an order of the circuit court for Milwaukee County:
CLARE L. FIORENZA, Judge. Affirmed in part; reversed in part and cause
remanded with directions.

Before Brash, C.J., Donald, P.J., and Dugan, J.
No. 2020AP493

¶1 DONALD, P.J. Germania Real Estate Venture II LLC
(“Germania”) and Germania Historic, LLC (“Historic”) appeal an order of the
circuit court granting STIR LLC (“STIR”) damages arising from the breach of a
commercial lease. Germania and Historic contend that the circuit court erred in
finding that STIR had an enforceable right of first refusal under the lease and in its
calculation of damages. We conclude that the lease, by its plain terms, granted
STIR an enforceable right of first refusal. However, we reverse and remand this
case for further factual findings regarding damages.

BACKGROUND

¶2 This case comes before us after extensive litigation in the circuit
court. This section serves as an overview of the facts relevant to this appeal.
Additional background facts will be referenced as necessary in the discussion
section.

¶3 STIR, a marketing agency, leased 3,591 square feet of office space
on the eighth floor of the historic Germania Building, located at 135 West Wells
Street in Milwaukee. STIR’s initial lease ran from October 1, 2010 until
September 30, 2015, with two optional three-year renewals. The lease also
included a “right of first refusal on any space that becomes available on the
[eighth] floor.”

¶4 In 2014, the building went into foreclosure and STIR renegotiated its
lease with The Equitable Bank NA, the successor landlord. The amendment
incorporated the original lease with some changes, including an expansion of
rental space to 5,677 square feet and an extended lease term of July 1, 2014 to
November 30, 2019, with two optional five-year renewals. Notably, the
amendment retained the right of first refusal.

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¶5 In December 2014, Germania purchased the building to redevelop it
into affordable housing.1 After Germania acquired the building, Germania’s
representatives, including Peggy Atwood, met with STIR’s owner. According to
Atwood’s notes, Germania “can work around [STIR] if they wish to stay. We can
create the housing on floors 2-7.”

¶6 On March 23, 2015, STIR provided notice to Germania that it
intended to exercise its right of first refusal as the other tenants vacated the eighth
floor.

¶7 On May 4, 2015, Germania gave written notice to STIR that it was
going to extensively renovate the building and that all tenants must vacate by
November 1, 2015. Germania further informed STIR that the eighth floor was
being converted into residential space, thus, no additional general office space
would become available to lease.

¶8 STIR declined to vacate the building, and on July 1, 2015, Germania
filed the underlying action against STIR, requesting a declaratory judgment that it
could breach the original lease and lease amendment.

¶9 On October 13, 2015, the circuit court granted Germania the right to
breach its lease. The circuit court reserved the issue of the amount of damages
Germania owed STIR for a later date.

¶10 On December 8, 2015, the circuit court required Germania to post a
bond in the amount of $195,000 before STIR moved. Subsequently, on

1
The eighth floor was ultimately a mix of market rate and subsidized apartments.

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December 11, 2015, the circuit court ordered that STIR vacate the building by
December 31, 2015. The order further provided that if STIR’s move could not be
accomplished by December 31, 2015, Germania must provide reasonable access to
the building beyond that date.

¶11 At the end of December 2015, STIR moved to the second floor at
330 East Kilbourn (Plaza East). There, STIR occupied 6,263 square feet of space.

¶12 In August 2016, the case was judicially transferred to a different
circuit court judge. Over the next several months, the parties appeared before the
court to address discovery issues, motions for partial summary judgment, and
motions in limine.

¶13 In April 2017, Germania informed the court and STIR that the
Germania Building had been sold to Historic in June 2016. STIR amended its
counter claim to include Historic as a third-party defendant.

¶14 On May 30, 2017, STIR sent a second letter regarding its right of
first refusal because the eighth floor was being publicly offered.

¶15 On July 13, 2017, the circuit court concluded that STIR’s right of
first refusal was “enforceable.”2 The circuit court stated that the language in the
lease was “unambiguous” and that “[a] reasonable person would understand the
words to mean that any space that becomes available on the eighth floor, whether
it be residential or office space, is subject to STIR’s right of first refusal.”

2
In its bond decision, the first judge also concluded that STIR had an enforceable right
of first refusal. However, because this ruling was made in the context of setting the bond, the
successor court concluded that this ruling was not final and re-examined the issue.

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Although the court concluded that STIR had an enforceable right of first refusal, it
stated it was not expressing any opinion on whether STIR would have exercised
its right of first refusal.

¶16 In April 2018, a five-day court trial on damages took place.
Testimony was taken from multiple witnesses, including Peter Morrison, STIR’s
expert witness for valuation, Jack Price, a Milwaukee area commercial real estate
broker, and Steven Vitale, Germania’s expert witness for valuation.

¶17 STIR argued that the circuit court should compare the difference
between the rent at the Germania Building to the rent at Plaza East resulting in
damages of $828,466. STIR also argued that it was entitled to $590,171 for the
lost option of the right of first refusal, $24,526.39 for moving expenses,
$64,408.75 for employee time related to the move, $145,513.33 for suite
buildouts, $68,040 for parking costs, and $13,162.80 for storage fees.

¶18 In contrast, Germania argued STIR was only entitled to $43,000 for
the value of the lease and lost option and $23,801.39 for moving expenses.
Germania argued that the value of the lease should be a comparison between the
rent at the Germania Building to market rent based on five comparable properties,
with the most weight given to 301 West Wisconsin Avenue (Matthews Building)
and 324 East Wisconsin Avenue (Wells Building).3

¶19 On February 7, 2020, the circuit court, in a written decision, found in
pertinent part that STIR “took reasonable efforts to find [a] new space,” and that

3
Historic argued that it was not liable for the breach of the lease, but to the extent it was
liable, joined Germania’s damages argument.

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“the appropriate measure of damages is to compare STIR’s actual lease at the
[Germania Building] to its rent at [Plaza East].” The court concluded that STIR
was entitled to damages in the amount of $1,152,360.90 broken down as follows:
(1) $741,721.30 in damages for the difference in rent between the Germania
Building and Plaza East; (2) $357,536.58 in damages for the lost option of the
right of first refusal; (3) $24,526.89 in damages for moving expenses;
(4) $16,813.33 in damages for buildout expenses; and (5) $11,762.80 in damages
for increased storage costs. The circuit court denied STIR’s request for employee
time spent moving and parking costs. In addition, the court concluded that
Historic was jointly and severally liable to STIR for damages.4 Germania and
Historic appeal.

DISCUSSION

I. The Right of First Refusal

¶20 Germania and Historic first argue that STIR was not entitled to
exercise its right of first refusal.

¶21 A lease is a written contract. See Tufail v. Midwest Hosp., LLC,
2013 WI 62, ¶24, 348 Wis. 2d 631, 833 N.W.2d 586. “The interpretation and
construction of a contract is a question of law that we review without deference to
the [circuit] court.” Zimmerman v. DHSS, 169 Wis. 2d 498, 507, 485 N.W.2d
290 (Ct. App. 1992). “When the terms of a contract are plain and unambiguous,
we will construe the contract as it stands.” State v. Peppertree Resort Villas, Inc.,
2002 WI App 207, ¶14, 257 Wis. 2d 421, 651 N.W.2d 345.

4
This ruling is not challenged on appeal.

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¶22 In this case, the right of first refusal provision in the original lease,
which was incorporated into the lease amendment, provides:

Article 27. RIGHT OF FIRST REFUSAL. Tenant will
require the right of first refusal on any space that becomes
available on the eight (8th) floor. Landlord shall present
the signed letter of intent to Tenant. Tenant shall have ten
(10) business days to review/accept the deal. If the tenant
does not respond with the ten (10) business days, then
Landlord is free to lease the space. The additional space
shall be rented at the same monthly amount as the Lease
rate for that period.[5]

¶23 Like the circuit court, we conclude that the plain language of the
right of first refusal unambiguously provides that STIR has the right of first refusal
on “any space” on the eighth floor.

¶24 Germania and Historic argue that the right of first refusal is limited
to “General Office” space. In support, they point to another section in the lease,
which provides:

6. USE OF PREMISES. The tenant shall occupy and use
the demised premises during the full term for the purpose
specified above and no other; General Office.

However, the plain language of this section simply dictates how the tenant must
use the premises. It does not reference the right of first refusal.

¶25 Moreover, the use of “general office space” elsewhere in the lease
cuts against Germania and Historic’s argument. If the right of first refusal was
limited to “general office space,” the lease would have said so. Instead, the right
of first refusal provision specifically states “any space,” not “any general office

5
The lease amendment changed the time for the tenant to respond from ten business
days to five business days.

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No. 2020AP493

space.” Thus, we conclude, that the lease provision unambiguously provided that
STIR had a right of first refusal on “any space.”

II. Damages

¶26 “Determining damages is within the [circuit] court’s discretion[,]”
and “[w]e will not reverse the [circuit] court’s findings of fact on damages unless
they are clearly erroneous.” J.K. v. Peters, 2011 WI App 149, ¶32, 337 Wis. 2d
504, 808 N.W.2d 141. “[D]ue regard shall be given to the opportunity of the
[circuit] court to judge the credibility of the witnesses.” WIS. STAT. § 805.17(2)
(2019-20).6 We will sustain a discretionary decision where the trial court
“examined the relevant facts, applied a proper standard of law, and, using a
demonstrated rational process, reached a conclusion that a reasonable judge could
reach.” Gaugert v. Duve, 2001 WI 83, ¶44, 244 Wis. 2d 691, 628 N.W.2d 861
(citation omitted).

¶27 Germania contends that the circuit court: (1) ignored STIR’s duty to
mitigate damages; (2) erroneously determined that the Plaza East building was
comparable to the Germania Building; (3) erroneously accepted the opinion of
STIR’s expert, Peter Morrison; (4) erroneously rejected the opinion of Germania’s
expert, Steven Vitale; and (5) erroneously calculated the damages for the right of
first refusal.

6
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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No. 2020AP493

¶28 We conclude that it is necessary to remand this case for further
factual findings regarding the right of first refusal, and for the circuit court to
determine if those additional factual findings impact the damage calculations.

¶29 In this case, the written decision on damages reiterated the circuit
court’s pre-trial ruling that STIR had an enforceable right of first refusal. The
decision then used an “expansion space” of 3,586 square feet to calculate STIR’s
damages for the lost option of the right of first refusal. Absent from the decision,
however, are any factual findings regarding whether STIR was actually going to
exercise the right of first refusal. See id., ¶44.

¶30 Moreover, we observe that the record reflects that at the Germania
building, STIR occupied 5,677 square feet of space. Subsequently, at Plaza East,
STIR occupied 6,263 square feet of space—an expansion of only 586 square feet.
This contrasts significantly with the 3,586 square feet of expansion space used by
the circuit court to calculate damages.

¶31 Therefore, we remand this case for the circuit court to make further
factual findings regarding whether STIR was actually going to exercise its right of
first refusal. In addition, we direct the circuit court to determine whether the
additional findings impact the calculation of damages for the right of first refusal
and any of the other damages awarded.

CONCLUSION

¶32 For the reasons stated above, we conclude that the plain language of
the lease granted STIR an enforceable right of first refusal. However, we reverse
and remand this case for further fact finding regarding whether STIR was going to

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No. 2020AP493

exercise that right, and whether those findings impact any of the damage
calculations.

By the Court.—Order affirmed in part; reversed in part and cause
remanded with directions.

Not recommended for publication in the official reports.

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