Ninth Circuit Rules Lease Damages Cap Does Not Apply to Damages Independent of Termination

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On December 29, 2016, the U.S. Court of Appeals for the Ninth Circuit (the “Court”) issued an opinion, holding that the statutory cap on a landlord’s damages claim in a bankruptcy case applies only to claims resulting directly from the termination of a lease, including pre-petition lease terminations. Splitting with lower courts in other jurisdictions, landlords in the Ninth Circuit may assert uncapped claims where their damages are “independent of termination,” including arbitration and attorneys’ fees and damages arising from tort claims.

Background and the Bankruptcy Court Decision -

The debtors were tenants of two commercial properties in California. The debtors stopped paying rent and eventually vacated the premises. The respective landlords sued for breach of both leases and the dispute was resolved through arbitration. The landlords prevailed in the arbitration and were awarded more than $1.3 million for past and future rent along with attorneys’ fees and arbitration fees amounting to nearly $200,000.

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