Appeal from the United States District Court for the District of Hawaii; Alan C. Kay, District Judge, Presiding; DC No. CV-83-0671.
Schroeder, Fletcher, and Ferguson, Circuit Judges.
This second appeal stems from Richard and Margaret Breton's agreement to sell a leasehold on real property to Central Pacific Supply Corporation ("CPS"), for use as a Tile Mart store. In our earlier decision, we invalidated the contract based on the Bretons' failure to provide marketable title, and remanded for calculation of damages. The Bretons appeal from the district court's award of improvement damages and attorney fees, and CPS cross-appeals, contending that the district court failed to award sufficient prejudgment interest. We affirm the interest award but reverse the fee and damage awards at issue.
FACTUAL AND PROCEDURAL BACKGROUND
The facts of the case are stated in our previous decision on the merits, Central Pacific Supply Corp. v. Breton, No. 88-1737, rev'd mem. 869 F.2d 1496 (1989) (table). On remand, the district court calculated CPS' damages at $102,959, including $37,357 for improvements to the property. In addition, it awarded attorney fees of $41,304 as authorized by the contract and Haw. Rev. Stat. § 607-17. Finally, it awarded prejudgment interest from the date of the 1989 Ninth Circuit decision. The Bretons appeal the grant of "improvement damages," contending that the amounts awarded are for removable trade fixtures and noncompensable ordinary repairs. They also claim that the award of attorney's fees was erroneous, since CPS sought and received rescission. CPS cross-appeals the interest award, contending that prejudgment interest should have commenced in 1983. We address the cross-appeal first.
CPS argues that prejudgment interest should have been awarded from 1983 when the agreement was terminated, under Haw. Rev. Stat. §§ 478-2, 636-16. We review prejudgment interest awards for abuse of discretion. Locricchio v. Legal Services Corp., 833 F.2d 1352, 1360 (9th Cir. 1987). Under Hawaii law, the trial judge has the discretion to designate any date for the commencement of prejudgment interest, "provided that . . . in cases arising by breach of contract, it may be the date when the breach first occurred." Haw. Rev. Stat. § 636-16 (emphasis added).
The district court did not abuse its discretion in selecting the 1989 date. It cited eight factors in support of its dcision, and emphasized the Bretons' good faith and reasonableness throughout the dispute. For example, it noted that the Bretons offered to allow CPS to remain on the premises rent-free, that they diligently attempted to obtain the subdivision approval, and that the encroachment was a pre-existing, unforeseen problem which [ILLEBIBLE WORDS] not create. Such factors are relevant and may be considered under Hawaii law. See Jenkins v. Whittaker Corp., 785 F.2d 720, 737 n.42, 738 n.44 (9th Cir. 1986).
CPS speculates that the court's decision was based on "personal displeasure" and implies that the Bretons' state court litigation was in bad faith. However, neither allegation is supported by the record. The case was a close one, and the court specifically found that both sides acted reasonably throughout the litigation. CPS "has failed to convince us that the [trial] court abused its discretion." Azer v. Myers, 8 Haw. App. 86, , 793 P.2d 1189, 1211, rev'd in part on other grounds, 71 Haw. 506, 795 P.2d 853 (1990).
II. Damages for Improvements
The district court awarded $37,357 to CPS in reimbursement for painting, roof repairs and tile displays which it left behind when it vacated the building. Whether these items are reimbursable depends on whether they constitute permanent improvements. This is a question of law subject to de novo review. Galindo v. Stoody Co., 793 F.2d 1502, 1516 (9th Cir. 1986). The Bretons argue that the tile displays were removable trade fixtures, and that the painting and roof repairs were ordinary, nonreimbursable repairs incurred in the course of the tenancy. In Hawaii,
The elements in determining whether an item is a fixture are (1) degree of annexation to realty or something appurtenant thereto; (2) adaptability or application as affixed to the use for which the real estate is appropriated; and (3) ...