If you are a co-tenant in a commercial lease and the rent isn’t paid, can the landlord seek complete recovery from each of the co-tenants? The answer is no in one 2014 case, which found that once the landlord got a judgement for all the damages from one co-tenant, no further recovery could be made against another.
DKN Holdings LLC had a lease with three co-tenants, Faerber, Neel and Caputo for space at a shopping center in Murieta in 2004. The lease had a ten year term which stated all three parties had joint and several liability to pay the rent (any of them could be held liable for the total rent). Three years later the agreement was changed to increase the space leased.
Three months later Caputo sued DKN to rescind the lease due to fraud and other causes of action, setting loose counter claims by DKN against all three co-tenants. DKN sought rent payments from all three but served legal papers only on Caputo (by its actions deciding not to pursue the other two). In 2011, Caputo lost the case, DKN was awarded $2.8 million in damages and Faerber and Neel were dismissed from the case because they weren’t served with the complaint. DKN later sued the two seeking the $2.8 million.
Faerber asked the judge to dismiss the case, claiming DKN was improperly splitting the case. The judge agreed, dismissing the case and ordering DKN to reimburse Faerber for attorney’s fees. DKN appealed, but the appellate court upheld the trial court decision.
The appellate court’s decision was based on the legal doctrine of res judicata, which tries to ensure that all relevant legal issues in dispute are litigated efficiently as possible, avoiding multiple trials on the same issue. For this to apply to either the entire cause of action, or one or more issues in the lawsuit,
- A claim or issue raised in the lawsuit is identical to a claim or issue litigated in a prior proceeding,
- A final judgment on the merits was issued in the prior proceeding, and
- The party against whom the doctrine is being asserted was a party in, or had a legal relationship with a party to, the prior proceeding.
The appellate court essentially found DKN sought to try the original case again against the two other co-tenants. It decided that DKN had its chance to pursue Faerber in the first case, failed to do so, so the case was dismissed. We don’t know why Farber and Neel weren’t served in the original lawsuit. Generally plaintiffs seek to get as many potentially responsible defendants in a case as possible to increase the chance there will be full financial recovery since the greater number of parties potentially the greater the financial resources.
If you’re a commercial tenant or landlord and you think there may be a future legal dispute over rent or the terms of a lease, or such a dispute is currently happening, contact our office today so we can talk about the problem between the parties and the best options to get it resolved.