Fort Worth Partners, LLC v. Nilfisk, Inc.

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

FAYETTEVILLE DIVISION

FORT WORTH PARTNERS, LLC PLAINTIFF

V. CASE NO. 5:22-CV-05181

NILFISK, INC. and

NILFISK HOLDING A/S,

a Danish Corporation DEFENDANTS

MEMORANDUM OPINION AND ORDER

This case arises from a lease between Plaintiff Fort Worth Partners, LLC (“FWP”)

and Defendants Nilfisk, Inc. and Nilfisk Holding A/S, a Danish Corporation (collectively,

“Nilfisk”) of a building that was severely damaged by a tornado. On February 20, 2024,

the case came before the Court for a final pre-trial conference. At that time, the Court

made a number of rulings related to the following pending motions, which are fully briefed

and ripe for review: Nilfisk’s Motion to Exclude the Testimony of Andre Slintak and Kevin

McMahon (Doc. 41) (“Nilfisk’s Daubert Motion”); FWP’s Motion for Summary Judgment

(Doc. 33); and Nilfisk’s Motion for Summary Judgment (Doc. 36). This Order memorializes

those rulings. To the extent anything in this Order differs from the Court's rulings from the

bench, this Order shall control. For the reasons that follow, Nilfisk’s Daubert Motion is

DENIED; FWP’s Motion for Summary Judgment is GRANTED IN PART and DENIED IN

PART; and Nilfisk’s Motion for Summary Judgment is DENIED.

I. BACKGROUND

A. Factual Background

The following facts are undisputed. This matter concerns a lease agreement (the

“Lease”) between Nilfisk and FWP for a commercial building located at 979 E. Robinson

Ave., in Springdale, Arkansas (the “Building”). The Building is an approximately 200,000

square foot warehouse-style building, which is comprised of two approximately 100,000-

square-foot sections, the eastern section and western section. On March 30, 2022, an

EF-3 tornado touched down in Springdale and damaged the Building. All 100,000 square

feet of the western section and 40,000 square feet of the eastern section collapsed. The

portion of the eastern section that remained standing was damaged.

Under the Lease, FWP owned the Building (and the property on which it sits) and

was the lessor; Nilfisk, Inc. was the sole tenant; and Nilfisk Holding A/S, a Danish

Corporation was the sole guarantor. The Lease includes four parts: an Industrial Lease

Agreement for the Building (the “Original Lease”) (Doc. 2-1) and three amendments

(Docs. 2-2, 2-3, 2-4). FWP and Nilfisk were not parties to the Original Lease. Nilfisk, Inc.

became tenant under the First Amendment in 2015; FWP purchased the Building and

became successor in interest to the Original Lease and First Amendment on May 17,

2016; and Nilfisk Holding A/S became guarantor under the Second Amendment in 2017.

The parties agreed to triple-net lease terms: In addition to rent and utilities, Nilfisk was

obligated to pay for all property-related expenses, including real estate taxes, fire and

casualty insurance, and all maintenance and repairs.

By its own terms, the Lease is governed by Arkansas law, “the state in which the

Premises is located.” (Doc. 2-1, p. 19). Two terms of the Lease are most important to the

case at bar: Sections 10.2 and 18.3. Section 10.2 imposes an obligation on the tenant to

maintain commercial property insurance:

10.2. Coverage Amounts. Tenant shall purchase and maintain,

throughout the Term, a Tenant's Policy(ies) of (i) “all-risk” commercial

property insurance covering the improvements constructed, installed or

located on the Premises (but excluding Tenant's Property) against all loss

or damage caused by fire, ice, hurricane, windstorm and such other risks

of physical loss or damage as are covered by a causes of loss special

form insurance policy, which coverage shall, at all times, be in an amount

equal to one hundred percent (100%) of the then “full replacement cost”

of the Premises subject to a deductible not to exceed One Hundred

Thousand and No/100 Dollars ($100,000.00) (“Full Replacement Cost”

shall be interpreted to mean the cost of replacing the Premises without

deduction for depreciation or wear and tear, less the cost of footings,

foundations and other structures below grade) . . . .

(Doc. 2-1, p. 9 (the “Full Replacement Cost Insurance Obligation”)). Section 18.3

provides, inter alia, a termination procedure which is triggered by a Major Casualty:

18.3.1. If a (i) Casualty, (ii) Condemnation, or (iii) Material Temporary

Taking shall affect all or a substantial portion of the Premises, and:

18.3.1.1. [I]n the case of a Casualty, such Casualty shall be deemed

a “total loss” for insurance purposes or shall be determined to be a loss

of such dimension that the Premises cannot be completely restored or

rebuilt within two hundred seventy (270) days computed after the

hypothetical date of commencement of such construction (a “Major

Casualty”) . . .

then Tenant may, at its option, exercisable not later than sixty (60) days

after the date of such Major Casualty or Condemnation, deliver to

Landlord (A) notice (a “Termination Notice”) of its intention to terminate

this Lease on the next rental payment date that occurs not less than forty

five (45) days after the delivery of such notice (the “Termination Date”)

. . . (C) in the case of a Major Casualty, (x) the certificate of an architect

licensed in the state in which the Premises is located stating that the

architect has determined, in its good faith judgment, that the Premises

cannot be completely restored or rebuilt for continued use and

occupancy in Tenant's business within a building construction period of

two hundred seventy (270) days computed from the hypothetical date of

commencement of such construction or (y) written confirmation from the

issuer of the applicable insurance policy that it will treat the damage to

the Building or Buildings as a “total loss”; and (D) an irrevocable offer (a

“Event of Loss Purchase Offer”) by Tenant to Landlord to purchase the

Premises on the Termination Date.

If Landlord shall reject the Event of Loss Purchase Offer by written notice

given to Tenant not later than fifteen (15) days prior to the Termination

Date, this Lease shall terminate on the Termination Date, except with

respect to obligations and liabilities of Tenant or Landlord hereunder,

actual or contingent, which have arisen on or prior to the Termination

Date . . . .

Id. at pp. 14.

Nilfisk maintained property insurance policies on the Building from 2016 to 2022,

renewed annually. FWP received certificates of each annual policy from Nilfisk. Although

the amount of property insurance Nilfisk obtained on the Building varied from 2016 to

2022, Nilfisk never obtained more than $10 million in property insurance on the Building

in any year during its Lease of the Building. Prior to the tornado, FWP received a 2021-

2022 certificate of property insurance for the Building, which was the certificate outlining

the amount of coverage on the Building when the tornado struck in March 2022. That

amount was $5,149,999.

After the tornado struck, Nilfisk’s insurer assessed the damage to the Building,

evaluated the estimated cost to repair it, and ultimately paid out the policy limits under the

2021-2022 property insurance policy: $5,149,999.00. In August 2022, Nilfisk paid FWP a

total of $5,292,427.32, which included all of the property insurance proceeds Nilfisk

received related to the damage to the Building, and vacated the Building on or about

August 1, 2022.

B. Procedural Background

FWP filed its Complaint (Doc. 2) on September 6, 2022, bringing a breach of

contract claim against Nilfisk under the Lease. The Complaint alleges that Nilfisk

breached Section 10.2’s Full Replacement Cost Insurance Obligation, improperly

“exercise[d] their casualty, termination, and purchase offer rights under the Lease,” and

vacated “the Building prior to the expiration of the term” of the Lease. (Doc. 2, ¶ 25).

FWP seeks damages for (1) the difference between the cost to replace the Building

(less footings, foundations, and other structures below grade) and the $5,292,427.32 paid

by or on behalf of Nilfisk in August 2022, and (2) the unpaid rent Nilfisk owes from August

2022, when Nilfisk vacated the Building, to October 2024, the expiration date of the Lease.

(Doc. 2-4, p. 1). On August 1, 2023, FWP filed a Motion to amend its Complaint (Doc. 25)

to include a new theory of breach under Section 18.1 of the Lease. The Court denied that

Motion (Doc. 32), finding that it was not timely and did not satisfy Fed. R. Civ. P. 16(b).

The parties filed their cross-motions for summary judgment on October 30, 2023,

and Nilfisk filed its Daubert motion that same day. There are two additional liminal motions

pending that are not addressed in this Order (Docs. 72 & 74). This matter is scheduled

for a bench trial on February 26, 2024.

II. NILFISK’S DAUBERT MOTION

Nilfisk argues that testimony from FWP’s experts Andre Slintak and Kevin

McMahon should be stricken as irrelevant and inadmissible. Slintak is a licensed engineer

and McMahon is a professional estimator. Slintak and Mahon both contributed to FWP’s

June 9, 2023 Engineering Evaluation Report (the “Report”) (Doc. 33-1. pp. 69–203);

Slintak evaluated the damage and reparability of the Building, and McMahon estimated

the cost to rebuild it.

In the Report, Slintak and McMahon concluded that the Building “cannot be

repaired” due to damage to its foundation, and that the entirety of the Building “must be

demolished in order to be reconstructed.” Id. at p. 85. Slintak and McMahon initially

estimated replacement cost value of the Building to be $27,722,974.03, and later revised

their estimate to $27,547,056.13 after deducting costs for footings, foundations, and other

materials below grade as well as associated profit and overhead pursuant to Section 10.2.

(Doc. 33-1, pp. 86, 464–65).

A. Legal Standard

The decision whether to exclude expert testimony is committed to a district court’s

discretion, subject to the Federal Rules of Evidence, including Rule 702. Johnson v. Mead

Johnson & Co., LLC, 754 F.3d 557, 561 (8th Cir. 2014). Rule 702 states that:

A witness who is qualified as an expert by knowledge, skill, experience,

training, or education may testify in the form of an opinion or otherwise

if: (a) the expert’s scientific, technical, or other specialized knowledge will

help the trier of fact to understand the evidence or to determine a fact in

issue; (b) the testimony is based on sufficient facts or data; (c) the

testimony is the product of reliable principles and methods; and (d) the

expert has reliably applied the principles and methods to the facts of the

case.

The Eighth Circuit applies these elements through a three-part test:

First, evidence based on scientific, technical, or other specialized

knowledge must be useful to the finder of fact in deciding the ultimate

issue of fact. This is the basic rule of relevancy. Second, the proposed

witness must be qualified to assist the finder of fact. Third, the proposed

evidence must be reliable or trustworthy in an evidentiary sense, so that,

if the finder of fact accepts it as true, it provides the assistance the finder

of fact requires.

Johnson, 754 F.3d at 561 (quoting Polski v. Quigley Corp., 538 F.3d 836, 839 (8th Cir.

2008)).

It follows that the proponent of expert testimony bears the burden of showing by a

preponderance of the evidence that the above requirements are satisfied; however,

“[c]ourts should resolve doubts regarding the usefulness of an expert’s testimony in favor

of admissibility.” See Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 757–58 (8th Cir.

2006). Proponents of an expert need not show that their expert’s assessment is correct,

only that it is reliable—a lower standard. Fed. R. Civ. P. 702 advisory committee’s note to

2000 amendment. When assessing the validity of scientific information in particular, the

trial court may consider one or more of the following non-exclusive factors: “(1) whether

the theory or technique can be (and has been) tested; (2) whether the theory or technique

has been subjected to peer review and publication; (3) the known or potential rate of error;

and (4) whether the theory has been generally accepted [in the relevant scientific

community].” Lauzon v. Senco Prods., Inc., 270 F.3d 681, 687 (8th Cir. 2001) (citing

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 593–94 (1993)). A district court

possesses broad discretion in making its reliability determination. Kumho Tire Co. v.

Carmichael, 526 U.S. 137, 142 (1999).

B. Discussion

Turning first to relevance, Nilfisk argues that Slintak’s and McMahon’s opinions

regarding rebuilding are irrelevant “because they do not bear on any actual claim asserted

in this case.” (Doc. 42, p. 6). In support of this argument, Nilfisk quotes Slintak’s deposition

testimony, in which he repeatedly referred to basing the Report’s conclusion that repair

was not feasible on an “overlying specification” that “the structure was to be returned to

its preloss condition.” (Doc. 41-4, pp. 4–5). Slintak opined that “performing a substantial

number of isolated repairs or rehabilitations around the perimeter and the interior of the

slab” would “create[e] a condition which didn’t exist there prior.” Id. at p. 4.

Nilfisk argues that the “overlying specification” to which Slintak referred was

Section 18.1 of the Lease and that, because FWP did not plead its breach of contract

claim under that Section, Slintak’s testimony is irrelevant for lack of “fit” to the claim. This

argument does not carry water. Slintak stated in his deposition that he had not personally

seen the Lease’s requirements and that it was not his role to interpret leases or contracts.

Id. at p. 5. And while it may be true that FWP’s breach of contract claim was brought under

Section 10.2, it is a basic tenet of contract law that “different clauses of a contract must

be read together and the contract construed so that all of its parts harmonize, if that is at

all possible.” Tyson Foods, Inc. v. Archer, 147 S.W.3d 681, 685–86 (Ark. 2004) (citing

Continental Cas. Co. v. Davidson, 463 S.W.2d 652 (Ark. 1971)).

Slintak’s and McMahon’s testimony speaks to the issue of damages. The operative

measure of damages here is “the difference between the amount of insurance on the

property and . . . the property’s replacement cost.” DWB, LLC v. D&T Pure Trust, 550

S.W.3d 420, 431 (Ark. Ct. App. 2018). That measure requires FWP to establish the

Building’s replacement cost, as defined in Section 10.2—and that is precisely what Slintak

and McMahon endeavored to do with their estimate. Regardless of whether their opinions

are deemed credible at trial, their estimate is certainly relevant under the damages

standard.

Next, Nilfisk argues that Slintak’s and McMahon’s testimony is inadmissible

because FWP cannot recover the amount to fully rebuild the Building under Arkansas law.

Here, Nilfisk essentially restates its inflated damages arguments from its Motion for

Summary Judgment. For the reasons laid out in subsection III.B.2.d, infra (discussing

Nilfisk’s inflated damages arguments), the Court declines to strike Slintak and McMahon’s

testimony on those grounds. Accordingly, the Court finds that FWP’s experts’ testimony

is relevant and admissible. Nilfisk’s Daubert Motion is DENIED.

III. CROSS-MOTIONS FOR SUMMARY JUDGMENT

A. Legal Standard

“The court shall grant summary judgment if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a matter

of law.” Fed. R. Civ. P. 56(a). The Court must review the facts in the light most favorable

to the opposing party and give that party the benefit of any inferences that logically can

be drawn from those facts. Canada v. Union Elec. Co., 135 F.3d 1211, 1212–13 (8th Cir.

1997). The moving party bears the burden of proving the absence of a genuine dispute

of material fact and that it is entitled to judgment as a matter of law. See Fed. R. Civ. P.

56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986);

Nat’l Bank of Commerce of El Dorado v. Dow Chem. Co., 165 F.3d 602 (8th Cir. 1999).

Once the moving party has met its burden, the non-moving party must “come

forward with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita,

475 U.S. at 587 (quoting Fed. R. Civ. P. 56(c)). “[T]he mere existence of a scintilla of

evidence in support of the [moving party’s] position will be insufficient” to survive

summary judgment. Anderson v. Durham D&M, L.L.C., 606 F.3d 513, 518 (8th Cir. 2010)

(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). Rather, for there to

be a genuine issue of material fact that would preclude summary judgment, the non-

moving party must produce evidence “such that a reasonable jury could return a verdict

for the nonmoving party.” Allison v. Flexway Trucking, Inc., 28 F.3d 64, 66 (8th Cir. 1994)

(quoting Liberty Lobby, Inc., 477 U.S. at 248).

Where, as here, the parties have filed cross-motions for summary judgment, this

same standard applies. But each motion must be reviewed in its own right, with each side

“entitled to the benefit of all inferences favorable to them which might reasonably be

drawn from the record.” Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir.

1983); see also Canada v. Union Elec. Co., 135 F.3d 1211, 1212-13 (8th Cir. 1998).

B. Discussion

In its Motion for Summary Judgment, FWP urges the Court to find on the

undisputed facts that Nilfisk breached Section 10.2 of the Lease by failing to procure and

maintain an “all-risk” commercial property insurance policy as required by the Full

Replacement Cost Insurance Obligation, and that FWP is entitled to damages as a result.

Specifically, FWP argues that it is owed:

a total of $23,919,928.81, which comprises $27,547,056.13 for the cost

to replace the Building (less footings, foundations, and other structures

below grade, and associated profit and overhead), plus $915,000 (the

amount of base rent from August 2022 through October 31, 2023, i.e.15

months), plus $750,300 (the annual rent for October 31, 2023 through

October 31, 2024, i.e. 12 months) less the Partial Payment

[$5,292,427.32].

(Doc. 33, ¶ 4).

Nilfisk’s Motion advances four arguments for summary judgment: that FWP’s claim

is barred by (1) the applicable statute of limitations and (2) the doctrine of avoidable

consequences, (3) that Section 10.2 of the Lease is an unenforceable agreement to

agree, and (4) that FWP’s damages claim is inflated and unavailable under Arkansas law.

In its Response to FWP’s Motion, Nilfisk raises several more rebuttal arguments, most

importantly that Nilfisk properly terminated the Lease and that genuine issues of material

fact preclude summary judgment for FWP.

To streamline its analysis, the Court will first consider FWP’s breach and damages

argument and Nilfisk’s rebuttal arguments in subsection III.B.1, below. Then, in

subsection III.B.2, the Court will consider Nilfisk’s four arguments for summary judgment.

1. FWP’s Motion for Summary Judgment

a. Liability for Breach

The first issue raised by FWP’s Motion for Summary Judgment is whether Nilfisk

breached the Lease by failing to comply with Section 10.2’s Full Replacement Cost

Insurance Obligation. In Arkansas, to prove common law breach of contract, a Plaintiff

must show: “(1) an enforceable contract exists, (2) the defendant has a duty under the

contract, (3) the defendant violated that duty, and (4) the plaintiff was damaged.” Smith v.

S. Farm Bureau Cas. Ins. Co., 18 F.4th 976 (8th Cir. 2021). “When performance of a duty

under a contract is contemplated, any non-performance of that duty is a breach.” Zufari

v. Architecture Plus, 323 Ark. 411, 420 (1996) (citing Restatement (Second) of Contracts

§ 235 (2) (1981)).

Here, it is undisputed that the Lease is an enforceable contract between FWP and

Nilfisk. And for the reasons laid out in subsection III.B.2.c, infra, the Court finds as a matter

of law that the language of Section 10.2 bound Nilfisk to an unambiguous, reasonably

certain, and thus enforceable, duty to comply with the Full Replacement Cost Insurance

Obligation.

Moreover, the undisputed facts show that Nilfisk breached its duty under the Full

Replacement Cost Insurance Obligation. The parties do not dispute that the amount of

property insurance on the Building on March 30, 2022 was $5,149,999. At least three

estimates have been furnished by the parties as to the cost of rebuilding or repairing the

Building in a manner that complies with Section 10.2. FWP’s expert witnesses estimate

the cost to rebuild the Building to be $27,547,056.13, accounting for deductions for the

costs for footings, foundations, and other materials below grade, as well as the associated

profit and overhead. (Doc. 33-1, pp. 86, 464–65). For the purpose of rebuttal, Nilfisk’s

experts estimate the approximate cost to repair the Building to be $14,253,578. (Doc. 51-

17, p. 10). Nilfisk also points the Court to an estimated replacement cost value of

$9,428,939.87, which was calculated by its insurer in April 2022. See Doc. 51, p. 4; Doc.

36-23, pp. 1, 36. FWP responds that the insurer’s low estimate is inadmissible hearsay—

but the Court need not decide that issue now. Reviewing these facts in the light most

favorable to Nilfisk leads the Court to conclude that even under the lowest (contested)

estimate of the Building’s replacement cost value, $9.4 million, Nilfisk was underinsured

by more than $4 million, thus damaging FWP in at least that amount. DWB, LLC v. D&T

Pure Trust, 550 S.W.3d 420, 431 (Ark. Ct. App. 2018) (finding that where a tenant has a

replacement cost insurance obligation and then underinsures that obligation, the measure

of damages is “the difference between the amount of insurance on the property and . . .

the property’s replacement cost”). For these reasons, the Court finds that Nilfisk breached

Section 10.2’s Full Replacement Cost Insurance Obligation as a matter of law.

b. Materiality of Breach

The second issue is whether Nilfisk’s breach was material, thus discharging FWP

from its obligations under the Lease. Generally, “the failure of one party to perform his

contractual obligations releases the other party from his obligations.” Taylor v. George, 92

Ark. App. 264, 272 (2005) (collecting cases). But “for one party's obligation to perform to

be discharged, the other party's breach must be material.” Id. at 272–73. If the breach “‘is

not so material as to discharge the other party's duty of performance, the latter's only

remedy is damages for the partial breach.’” TXO Prod. Corp. v. Page Farms, Inc., 287

Ark. 304, 307 (1985) (quoting Corbin, Contracts, § 1253 (1962)). “A material breach is a

failure to perform an essential term or condition that substantially defeats the purpose of

the contract for the other party.” Spann v. Lovett & Co., 2012 Ark. App. 107, 21 (2012).

“An influential circumstance in the determination of the materiality of a failure fully to

perform a contract is the extent to which the injured party will obtain the substantial benefit

that he reasonably anticipated.” Taylor, 92 Ark. App. at 273 (citing TXO Prod. Corp. 287

Ark. 304 (1985)).

Here, the Court finds that Nilfisk’s breach was material for two reasons. The first is

that, as FWP argues in its Motion, the full cost of replacing the Building after loss from a

tornado is clearly a “substantial benefit”; under any of the replacement cost estimates

advanced by the parties in this case, the replacement cost value of the Building was

several million dollars. And the express language of Section 10.2 makes clear that it was

reasonable for FWP to anticipate it would receive that benefit in the event of a loss like a

tornado. See Doc. 2-1, p. 9 (“Tenant shall purchase and maintain . . . ‘all-risk’ commercial

property insurance . . . against all loss or damage caused by . . . windstorm . . . which

coverage shall . . . be in an amount equal to . . . the then ‘full replacement cost’ of the

Premises . . .”). The allocation of risk is a substantial, material benefit under any lease of

a valuable property asset like the Building at issue here.

The second reason Nilfisk’s breach was material is that it cut short the monies

required to restore the Building. As a result, the Building could not continue to operate as

a commercial property, and FWP could not relet it. In this sense, Nilfisk’s breach of the

Full Replacement Cost Insurance Obligation prevented both parties from “curing” the

damage that prohibited them from benefiting from the Building’s commercial value as

landlord and lessee—Nilfisk prolonged the damage to the Building by stymying its repair

or replacement. Because the Court finds that Nilfisk’s breach of the Full Replacement

Cost Insurance Obligation was material as a matter of law, the breach released FWP from

further obligations under the Lease.

c. Damages

The final issue is damages. “The underlying purpose in awarding damages for

breach of contract is to place the injured party in as good a position as he would have

been in had the contract been performed.” Cook v. Cook, 378 S.W.3d 275, 289 (Ark. Ct.

App. 2010). Here, damages related to Nilfisk’s breach of the Full Replacement Cost

Insurance Obligation and damages from unpaid rent are required to place FWP in that

position. The Court’s analysis begins with the former.

Under DWB, LLC, the measure of damages where a tenant fails to meet a

replacement cost insurance obligation is “the difference between the amount of insurance

on the property and . . . the property’s replacement cost.” 550 S.W.3d at 431. Here, the

amount of insurance Nilfisk held on the property, $5,149,999, is undisputed. But the

Building’s replacement cost is contested; most critically, through conflicting expert witness

testimony. FWP’s estimate is nearly twice as much as Nilfisk’s, primarily because the

parties’ dueling experts disagree about whether the Building can be repaired or must be

rebuilt entirely. In any event, the Court finds the matter of the cost to repair or replace the

building to be inappropriate for summary judgment. The Court also declines to strike either

side’s expert testimony prior to trial.1

1 FWP attacked Nilfisk’s experts’ methodology in its Motion for Summary Judgment, rather

than filing a Daubert motion. The Court has considered FWP’s arguments and declines

to strike Nilfisk’s expert testimony here.

Next, the Court turns to the issue of damages for unpaid rent. As Nilfisk points out,

“Plaintiff’s claim regarding Nilfisk’s termination of the Lease is entirely dependent upon its

breach claim related to insufficient insurance coverage.” (Doc. 51, p. 18). Pursuant to the

Court’s finding that Nilfisk materially breached Section 10.2 by failing to comply with the

Full Replacement Cost Insurance Obligation, FWP was released from the casualty,

termination, and purchase offer rights allocated to Nilfisk under Section 18.3 when Nilfisk

vacated the property on or about August 1, 2022. Consequently, Nilfisk’s termination of

the Lease through that process was improper: FWP was no longer bound by its

obligations under the Lease after Nilfisk’s material breach.

The traditional view, under common law, gives a landlord three options

when a lessee abandons the premises: 1) he may refuse to accept

abandonment, let the premises lie idle, and sue the tenants as the rent

matures; 2) accept the keys as a surrender of possession, thereby

terminating the lease and reenter on his own account; or 3) reenter and

relet for the tenant's account and hold the tenant liable for any difference

in the agreed rent and that of the new tenant.

Weingarten/Arkansas, Inc. v. ABC Interstate Theatres, Inc., 306 Ark. 64, 67 (1991) (citing

Grayson v. Mixon, 5 S.W.2d 312 (1928)).

Here, only the first option is available to FWP because the tornado rendered the

Building unusable and Nilfisk’s breach prevented the parties from replacing it. Under the

general rule, FWP would be entitled in this case to the unpaid rent from August 2022 until

trial, set for February 2024, and to file subsequent lawsuits for the remaining months’ rent

until the Lease’s expiration date, October 31, 2024. See Advance Food Servs., Inc. v.

Cooper Realty Invs., Inc., 2002 WL 31019349, at *4 (Ark. Ct. App. Sept. 11, 2002) (citing

Grayson, 5 S.W.2d 312, 314–15 (1928)) (holding that “either multiple suits for each

month's rent or one suit at the end of the lease term were contemplated by the first

common-law option”). However, given the Court’s rulings from the bench, the parties

agreed in the pretrial conference that because the Building will not be replaced until after

the Lease’s termination date, the end date for FWP’s damages for unpaid rent extends

through October 2024.

As the Court discusses further in subsection III.B.2.b, infra, the Court would

ordinarily turn next to the question of whether FWP complied with its general duty to

mitigate damages. But Arkansas imposes no such duty on landlords on these facts.

Browne v. Dugan, 74 S.W.2d 640, 645 (Ark. 1934); see also Howard W. Brill, Arkansas

Law of Damages, § 25:4 (5th ed. 2004) (“Confused case law leads to the conclusion that

the landlord has no common law duty to mitigate by attempting to sublet the premises

after the tenant’s breach and abandonment.”); Jeremy K. Brown, A Landlord's Duty to

Mitigate in Arkansas: What It Was, What It Is, and What It Should Be, 55 Ark. L. Rev. 123,

125–28 (2002) (similar). And even if it did, the Court finds that it was reasonable for FWP

not to relet the Building after Nilfisk vacated it because doing so would have required

FWP to incur the significant cost of replacing the damaged Building on its own.

Therefore, the Court finds that Nilfisk is liable for a total of $1,665,300 in unpaid

rent, calculated as follows:

• $915,000—fifteen months’ rent at $61,000 per month (August 2022 through

October 2023), the first rate set in the Third Amendment’s base rent schedule, see

Doc. 2-4, p. 1; plus

• $250,100—four months’ rent at $62,525 per month (November 2023 through

February 2024), the second base rent rate in the same, applied through this case’s

trial date, see id.; plus

• $500,200—the present value of the eight months’ rent at $62,525 per month, see

id., that will accrue after trial through the end of the Lease term (March through

October 2024).2

In conclusion, for the foregoing reasons, FWP’s Motion for Summary Judgment is

GRANTED on the question of Nilfisk’s liability for breach and damages for unpaid rent

and DENIED on the question of damages for breach of Section 10.2’s Full Replacement

Cost Insurance Obligation.

2. Nilfisk’s Motion for Summary Judgment

a. Statute of Limitations

The first issue Nilfisk raises is whether FWP’s breach of contract claim under

Section 10.2 is barred by the applicable five-year statute of limitations. Nilfisk contends

that because it only held $8,302,200 in property insurance in May 2016 and “never

obtained more than $10 million” in coverage, to the extent the replacement value was

more than that, Nilfisk’s breach began to accrue in May 2016 when FWP purchased the

Building and assumed the Lease—more than six years before FWP filed its Complaint.

(Doc. 37, p. 11). This is a disingenuous contention.

In Arkansas, “[a]ctions to enforce written obligations, duties, or rights . . . shall be

commenced within five (5) years after the cause of action shall accrue.” Ark. Code Ann.

§ 16-56-111. The cause of action accrues in a breach of contract claim “when the plaintiff

could have first maintained the action to a successful conclusion.’” Dupree v. Twin City

2 The Court has not calculated the present value of these future rents here; it has instead

used $500,200 as placeholder for that value. The parties are directed to confer and

attempt to stipulate to the discounted present value. Otherwise, FWP should present

proof or argument as to how the damages for future rents should be calculated to account

for the present value of future damages.

Bank, 300 Ark. 188, 191 (1989). “Said another way, ‘[a] cause of action accrues the

moment the right to commence an action comes into existence, and the statute of

limitations commences to run from that time.’” Pennington v. BHP Billiton Petroleum

(Fayetteville), LLC, 2021 Ark. 179, 3 (2021) (quoting Ray & Sons Masonry Contractors,

Inc. v. U.S. Fid. & Guar. Co., 353 Ark. 201, 216 (2003)).

The parties focus their accrual arguments on two Arkansas cases, Pennington and

Beckworth v. Diamante, Private Membership Golf Club, LLC, 2010 Ark. App. 814 (2010),

and dispute their import to the facts at bar. Pennington concerned “contracts requir[ing]

defendants to make a monthly royalty payment to plaintiffs,” which were, “potentially, in a

different amount each month.” 2021 Ark. 179 at 6. The question presented to the Supreme

Court of Arkansas was “whether Arkansas law prevents plaintiffs from pursuing their

breach-of-contract claim when the first breach occurred outside the statute-of-limitations

period.” Id. at 1–2. The court analogized the monthly royalty payments to monthly

installment payments in a debtor-creditor relationship and found that “[e]ach monthly

underpayment constituted a separate cause of action for breach of contract.” Id. at 5.

Therefore, the Court held that a separate statute-of-limitations period began as each

monthly royalty payment became due, and that “[t]he existence of monthly

underpayments of royalties outside the limitations period does not bar recovery for

underpayments within the limitations period under Arkansas law.” Id. at 6. Citing

Pennington, FWP argues that “it doesn’t matter that Defendants breached the Full

Replacement Cost Insurance Obligation annually from 2016 through 2021.” (Doc. 48, p.

5). Instead, “[w]hat matters for statute of limitations purposes is that Defendants again

breached it when they procured the policy at the time of the tornado.” Id.

Nilfisk counters that Pennington is “wholly inapplicable to the facts of this case and

to Plaintiff’s breach claim” because “Plaintiff’s underinsurance breach claim does not

involve the breach of a monthly payment obligation”; Beckworth is “more directly on point.”

(Doc. 56, p. 2). That case concerned a private golf course and club that was developed

as part of a subdivision. Beckworth, 2010 Ark. App. 814 at 1. Every property owner in the

subdivision was entitled to club membership but was required to pay monthly dues under

a recorded covenant. Id. at 1–2. The plaintiff argued that because the subdivision’s

developer had sold over ninety lots without collecting monthly dues from their owners in

breach of the covenants, the developer should not be able to enforce them against her.

Id. at 3–4. The plaintiff further argued that the sale of those lots was a continuing breach,

so that the statute of limitations did not begin to run until the practice terminated, bringing

her claim within the five-year statute of limitations. Id. at 5. However, the court concluded

that the breach of contract claim accrued, and the statute of limitations began to run when

the lots were first sold. Id. at 10. Nilfisk argues that, under Beckworth, “Plaintiff could have

asserted its breach claim as soon as Nilfisk originally placed insurance in May 2016 . . .

and Plaintiff’s underinsurance claim is time-barred.” (Doc. 56, p. 3). FWP counters that

unlike the continuing breach theory in Beckworth, FWP’s claim arises from “a particular,

discreet, single breach [that] resulted to monetary damage to Plaintiff.” Id. “The policy in

place at the time of the tornado is the policy that caused Plaintiff’s monetary damages—

not the 2016 policy.” Id.

Applied to the facts at bar, the Court finds Pennington to be more instructive than

Beckworth. Like the monthly royalty payments in Pennington, Nilfisk purchased annual

insurance policies in different amounts each year to satisfy the Full Replacement Cost

Insurance Obligation. Assuming, as Nilfisk, argues, that each policy breached that

insurance obligation, each breach was distinct, not continuous. By contrast, the breach

at issue in Beckworth was continuous—each of the ninety lot sales breached the same

covenant in the same way, by not enforcing the monthly dues payments. The Court finds

the two cases useful insofar as they distinguish between discreet and continuous

breaches—and finds a discrete breach to be at issue here.

The Court’s analysis is further guided by the Supreme Court of Arkansas’ opinion

in Shelter Mut. Ins. Co. v. Nash, 357 Ark. 581, 587–88 (2004). Although Nash concerned

a breach of an underinsured motorist policy not an insurance obligation under a lease,

the court’s accrual framework is elucidating here:

A cause of action for breach of contract accrues the moment the right to

commence an action comes into existence, and occurs when one party

has, by words or conduct, indicated to the other that the agreement is

being repudiated or breached. In ordinary contract actions, the statute

of limitations begins to run upon the occurrence of the last element

essential to the cause of action.

Id. at 587–88 (emphasis added) (internal citations omitted); see also Chapman v.

Alexander, 307 Ark. 87, 88 (1991).

Under Nash, the narrow question is when each element of FWP’s breach of

contract claim first occurred. Taking each in turn: (1) An enforceable contract existed

between FWP and Nilfisk as early as May of 2016, when FWP purchased the Building

and became a party to the Lease. (2) Nilfisk first incurred a duty to maintain Full

Replacement Cost Insurance under Section 10.2 at that same time. (3) While Nilfisk may

have been underinsured as early as 2016, violating that duty, the violation at issue

occurred on April 1, 2021, when the operative 2021-2022 policy took effect. But FWP was

not (4) damaged by that violation until the Tornado damaged the building on March 30,

2022. Cf. Ray & Sons Masonry Contractors, Inc. v. U.S. Fid. & Guar. Co., 353 Ark. 201,

216 (2003) (citing Larson Mach., Inc. v. Wallace, 268 Ark. 192 (1980)) (“To be subjected

to damage, there must be a loss.”). The intuition here is simple: “Full Replacement Cost”

is determined by the loss at issue, and underinsurance relative to that replacement cost

determines breach. FWP could not have sought underinsurance damages arising from a

2022 tornado under a 2016 insurance policy any more than the “Full Replacement Cost”

for “all loss or damage caused by” the “windstorm” at issue here was knowable until the

tornado actually struck. (Doc. 2-1. p. 9). Therefore, under Nash, the last element essential

to FWP’s cause of action for breach of Section 10.2 did not begin to accrue until March

30, 2022. Holding otherwise would lead to absurd results. For these reasons, the Court

finds that the applicable five-year statute of limitations has not run.

b. Avoidable Consequences

The second issue is whether FWP’s breach of contract claim is barred by the

doctrine of avoidable consequences, as recognized by Arkansas courts. See Greenway

Equip., Inc. v. Johnson, 602 S.W.3d 142, 149 (Ark. Ct. App. 2020) (citing Bill C. Harris

Constr. Co. v. Powers, 262 Ark. 96, 104–05 (1977); Taylor v. George, 92 Ark. App. 264,

273 (2005); Quality Truck Equip. Co. v. Layman, 51 Ark. App. 195, 199 (1995)). “The

doctrine applies in both tort and contract cases,” Brill, supra, § 4:6 (citing Powers, 262

Ark. at 105), and “provides that a party cannot recover damages for a wrong, even if it is

legally attributable to and proximately caused by another party, if the resulting damages

could have been avoided or reduced.” Id. Under the doctrine, “[r]easonable diligence and

ordinary care are all that are required.” Taylor, 92 Ark. App. at 273 (citing Enter. Sales Co.

v. Barham, 270 Ark. 544, 551 (1980)). “[R]easonableness is judged under an objective

standard.” Brill, supra, at § 4:6.

“The burden of proving that a non-breaching party could have avoided some or all

of the damages by acting prudently rests on the breaching party, not only on the question

of causation of damages for failure to avoid harmful consequences, but also on the

question of the amount of damage that might have been avoided.” Taylor, 92 Ark. App. at

273 (citing Powers, 262 Ark. at 104–05); see also Brill, supra, at § 4:6 (“The defendant

must establish both that damages resulted from a failure to act prudently and the amount

of damage that might have been avoided.”). A plaintiff’s failure to mitigate damages does

not relieve the defendant of liability. Cf. Powers, 262 Ark. at 111 (“Failure to mitigate

damages does not relieve a tortfeasor of liability. It is a consideration, only, in the

computation of the amount of damages.”).

Here, the primary measure of damages is “the difference between the amount of

insurance on the property and . . . the property’s replacement cost.” DWB, LLC v. D&T

Pure Trust, 550 S.W.3d 420, 431 (Ark. Ct. App. 2018). Turning first to the amount of

insurance on the property, the Court first observes that Section 10.2 provided FWP the

option, not the obligation, to procure additional insurance. The Lease laid the Full

Replacement Cost Insurance Obligation on the tenant, as is characteristic of a triple-net

lease. But regardless, once loss occurred, it became impossible to mitigate damages by

procuring additional insurance. As the saying goes, the damage was done.

Turning next to the Building’s replacement cost, the Court finds that the parties

may present evidence at trial that damages were not reasonably mitigated in the period

since the tornado struck, thus increasing the Building’s replacement cost. However, they

have not done so here.

“In most cases, whether one acted reasonably in minimizing, mitigating, or

avoiding damages is a question of fact.” Taylor, 92 Ark. App. at 273 (emphasis added)

(citing Powers, 262 Ark. at 105; Layman, 51 Ark. App. at 199). Without more, the Court

cannot find that Nilfisk has met its burden of proving the absence of a genuine dispute of

material fact on the question of whether FWP “caus[ed] [ ] damages [by] fail[ing] to avoid

harmful consequences” and “the question of the amount of damage that might have been

avoided,” if any. Taylor, 92 Ark. App. at 273 (citing Powers, 262 Ark. at 104–05).

Consequently, the Court finds that summary judgment is inappropriate on this issue,

though the doctrine of avoidable consequences remains available at trial.

c. Unenforceable Agreement to Agree

The third issue Nilfisk raises is whether Section 10.2’s Full Replacement Cost

Insurance Obligation is an unenforceable agreement to agree. Nilfisk argues that “the

Lease’s obligation to obtain ‘Full Replacement Cost’ insurance” on the Building “‘in an

amount equal to one hundred percent (100%) of the then ‘full replacement cost’ of the

Premises,’” (Doc. 37, p. 16 (emphasis in original) (quoting Doc. 2-1, p. 9)), is

unenforceable because it “requires the parties to subsequently reach an agreement with

respect to the unsettled terms in the future. . . .” (Doc. 56, p. 5).

In Arkansas insurance law, “replacement cost” is a term of art that distinguishes

the cost to replace or repair an insured property from the property’s actual cash value.

See, e.g., Stokes v. Harrell, 289 Ark. 179, 180 (1986) (considering the term as applied to

an insureds commercial store and its inventory after both were destroyed by a fire);

Nickelson v. State Farm Fire & Cas. Co., 1998 WL 75660, at *1–2 (Ark. Ct. App. Feb. 11,

1998) (considering the term as applied to an insured’s home that was similarly destroyed).

That distinction maps onto the general technical definition of replacement cost insurance:

Replacement cost coverage was devised to remedy the shortfall in

coverage which results under a property insurance policy compensating

the insured for actual cash value alone. That is, while a standard policy

compensating an insured for the actual cash value of damaged or

destroyed property makes the insured responsible for bearing the cash

difference necessary to replace old property with new property,

replacement cost insurance allows recovery for the actual value of

property at the time of loss, without deduction for deterioration,

obsolescence, and similar depreciation of the property's value.

12A Jordan R. Plitt et al., Couch on Ins. § 176:56 (3d ed. 2023) (footnotes omitted).

Because “replacement cost” insurance is a term of art, it is not vague.

Moreover, Section 10.2 precisely defines “Full Replacement Cost” in plain

language consistent with the technical meaning of “replacement cost” insurance: It

specifically refers to the “cost of replacing the Premises” rather than the Premise’s actual

cash value. See Doc. 2-1, p. 9 (emphasis omitted) (“‘Full Replacement Cost’ shall be

interpreted to mean the cost of replacing the Premises without deduction for depreciation

or wear and tear, less the cost of footings, foundations and other structures below grade

. . . .”). Where parties clearly and unambiguously express their intent, a court should look

to the plain language in construing the agreement. Troutman Oil Co., 75 Ark. App. at 352

(citing Coble v. Sexton, 71 Ark. App. 122 (2000)). Here, the plain language of Section 10.2

clearly and unambiguously imposes a present obligation on Nilfisk to maintain Full

Replacement Cost Insurance as that term is used in Arkansas insurance law and

expressly defined in the Lease.

In rejoinder, Nilfisk gets spun up about the inclusion of the word “then” in Section

10.2. See Doc. 37, p. 16 (arguing the word “then” was “based on some hypothetical future

date,” that it was “dynamic in nature,” and “require[d] Nilfisk to annually . . . predict the

price of construction for the following year”) (internal quotation marks omitted)). But this

argument is unpersuasive. “Then” means “at that time,” generally, Then, Merriam-

Webster.com, https://www.merriam-webster.com/dictionary/then [https://perma.cc/CB82-

C3PX], and “at the time of loss,” technically, Plitt et al., supra, § 176:56. Read in context,

the term “then” is also unambiguous and does not require the parties to reach further

agreement in the future to define it. “Then” means at the time of the tornado damage.

At bottom, Nilfisk’s argument reveals that it understands precisely what the Full

Replacement Cost Insurance Obligation requires. For example, Nilfisk is correct that, as

applied, “then” means “the date of damage to the building giving rise to a claim under the

insurance policy” and that determining the “cost of replacing the Premises” would have

required taking into account factors like “the cost of construction,” the prices of materials

and labor,” and “market conditions” each year, when the time came to reapply for

insurance coverage. (Doc. 37, p. 16). That is precisely what Nilfisk did when it applied for

property insurance policies each year from 2016 to 2022. This course of performance

further demonstrates that Nilfisk understood the meaning of “then replacement cost” in

Section 10.2. DWDubbell Arkansas, LLC, 2021 WL 4392493, at *4 (citing Swafford Ice

Cream v. Sealtest Foods, 483 S.W.2d 202, 204 (Ark. 1972)) (“To the extent a contract is

indefinite on its face, the parties’ conduct may cure the uncertainty.”). Therefore, the Court

finds that the Full Replacement Cost Insurance Obligation is enforceable.

d. Inflated Damages

The fourth and final issue is whether FWP’s damages claim is inflated. Nilfisk

makes two arguments to this effect. The first is that FWP’s damages are limited to those

that would have been recoverable under a policy with limits that would have complied

with the Full Replacement Cost Insurance Obligation. Nilfisk cites two failure to procure

insurance cases in support of this proposition: Derby v. Blankenship, 217 Ark. 272 (1950)

and Martin v. Langley, 252 Ark. 121 (1972). But these cases are inapposite because the

instant case is a breach of contract case, not a failure to procure insurance case between

insurance agents and insureds. Here, as previously discussed, the measure of damages

for breach of Section 10.2 is “the difference between the amount of insurance on the

property and . . . the property’s replacement cost.” DWB, LLC, 550 S.W.3d at 431.

Next, Nilfisk argues that “Arkansas case law confirms recoverable damages in

cases involving significant damage or destruction to an aged, damaged property is not

the replacement cost to build a new structure.” (Doc. 37, p. 20). “Plaintiff is not entitled to

a 2023 Cadillac when it was previously driving a 1981 Buick,” Nilfisk continues. Id. at p.

22. “Any damages award to Plaintiff must take into account ‘age condition and

depreciated state’ of the Building prior to the tornado.” Id. Nilfisk accurately states the

general damages rule. But “[p]arties are free to contract on any terms that do not violate

public policy or Arkansas statutes. In particular, contracting parties may fashion their own

remedies in the event of a breach.” Conway Com. Warehousing, LLC v. FedEx Freight

E., Inc., 2011 Ark. App. 51, 7 (2011) (citations omitted).

Here, Section 10.2 expressly provides that “‘Full Replacement Cost’ shall be

interpreted to mean the cost of replacing the Premises without deduction for depreciation

or wear and tear, less the cost of footings, foundations and other structures below grade.”

(Doc. 2-1, p. 9) (emphasis added). The language of the Lease thus obviates Nilfisk’s

argument. “The parties here agreed on a remedy in the event of a breach, and [the Court]

see[s] no reason why they should not be bound to it.” Conway Com. Warehousing, LLC,

2011 Ark. App. at 7. For these reasons, Nilfisk’s arguments fail to show that FWP’s

damages claim is inflated as a matter of law. If FWP was previously driving a 1981 Buick,

it is entitled to a 2024 replica of that vehicle as a matter of law.

To summarize, then: Nilfisk’s Motion for Summary Judgment is DENIED pursuant

to the Court’s findings that FWP’s breach of contract claim is not barred by the applicable

statute of limitations, is not an unenforceable agreement to agree, and that FWP’s

damages claim is not inflated under Arkansas law. Although the Court finds that FWP had

a duty to mitigate damages, Nilfisk’s Motion is also DENIED on that issue, though it

remains available at trial.

IV. CONCLUSION

For the foregoing reasons: Nilfisk’s Daubert Motion (Doc. 41) is DENIED. FWP’s

Motion for Summary Judgment (Doc. 33) is GRANTED with respect to Nilfisk’s liability for

FWP’s breach of contract claim and damages for unpaid rent under the Lease and

DENIED insofar as material issues of fact remain as to Nilfisk’s damages for breach of

the Lease’s Full Replacement Cost Insurance Obligation. Finally, Nilfisk’s Motion for

Summary Judgment (Doc. 36) is DENIED.

IT IS SO ORDERED on this 22nd day of February, 2024.

/s/ Timothy L. Brooks_____________

TIMOTHY L. BROOKS

UNITED STATES DISTRICT JUDGE