FARRELL, Associate Judge:
This appeal is from a judgment, after a bench trial, rejecting claims that the defendants had charged excessive management fees to, and double-billed, the plaintiffs, commercial tenants of a building owned by the defendants and managed through defendants' affiliate companies. The primary question is whether the operating expenses clause of the parties' lease, allowing the tenant to be
The building in question, named Washington Square, is owned by the Washington Square Limited Partnership ("WSLP"), in turn comprised of members of two families, the Abramsons and the Lerners. The building is managed jointly by the Tower Companies and the Lerner Corporation, owned respectively by the Abramson and Lerner families. In 1983, after lease negotiations involving the exchange of many drafts, the law firm of Gibson Dunn & Crutcher (here-after "Gibson Dunn") rented a sizeable portion of the building as office space. The lease provides for two types of rent, Basic Rent and Additional Rent, the latter largely reflecting the annual costs of managing and operating the building. For the most part, the Additional Rent charged consists of "operating expenses," which the lease provision at issue defines in relevant part as follows:
The last phrase is at the center of this appeal. During each year of the lease since 1988, when the operating expenses provision took effect, WSLP "paid or incurred" management fees of at least "5% of gross collections" to its management companies and charged them to Gibson Dunn ("passed them through," in the argot of the trade) as an operating expense to the extent allowed, 5%. In 1995, Gibson Dunn brought suit alleging that the management fees charged did not reflect the prevailing market rate for fees charged by other management companies. As amended, the complaint also alleged that reading the lease to allow a pass-through of 5% without regard to market rate violated an implied covenant of good faith and fair dealing.
WSLP argued at trial, and the trial court agreed, that the lease unambiguously allows WSLP to pass through management fees which it actually pays or incurs, provided that — and only that — the fees do not exceed 5% of gross collections. Gibson Dunn disputes this conclusion by asserting that the parties meant the 5% figure to be a cap on annual pass-throughs, but that the actual percentage charged each year would be determined by market usage, i.e., the prevailing market rate. Gibson Dunn presented testimony at trial to establish that the market rate during the leasing period was no more than 3% of gross rents; WSLP presented contrary evidence that there was no single market rate for management fees.
Under the "objective law" of contract interpretation followed by this court, Sagalyn v. Foundation for Preservation of Historic Georgetown, 691 A.2d 107, 111 (D.C. 1997), the written language of a contract governs the parties' rights unless it is not susceptible of clear meaning (or is the result of fraud, duress, or mutual mistake). Id.; Minmar Builders v. Beltway Excavators, Inc., 246 A.2d 784, 786 (D.C.1968). In deciding whether contract language has a "clear meaning," the court asks "`what a reasonable person in the position of the parties would have thought the disputed language meant.'" Sagalyn, 691 A.2d at 111 (quoting Intercounty Constr. Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C.1982)). The reasonable person
A reasonable person reading the "operating expenses" provision would see that it places two limits on the management fees the lessor may pass through. First, those fees must have been "paid or incurred" by the lessor, and second, they may not "exceed 5% of gross collections." The provision contains no express third limitation that such fees must be "reasonable" as determined (in Gibson Dunn's words) by "some outside measure," namely market rate. The absence of this additional qualifier is conspicuous because, elsewhere in the lease, the parties expressly referred to "fair market . . . value" or a similar external measure when they meant to incorporate that standard. Even more, as the trial court pointed out, they provided a mechanism by which market value could be determined and a means for resolving disputes over it.
Gibson Dunn points out that "it is common practice for courts to imply a price term based on prevailing rates and industry custom." But the cases it cites for this proposition dealt with agreements that "contain[ed] no standard as to the price to be paid." Day v. Len-Metal-Fab, Inc., 3 Conn.Cir.Ct. 249, 212 A.2d 426, 428 n. 1 (1965). The agreement here expressly states the management fees WSLP may recover — those it in fact incurs, so long as they do "not ... exceed 5% of gross collections." There is no third term to be applied unless one assumes, with Gibson Dunn, the point at issue: that the pass-through must conform to market rate. Gibson Dunn also observes that none of the other operating expenses listed is qualified by a market-based or reasonableness standard, leading it to ask (rhetorically) whether WSLP could charge the lessee with plainly unreasonable wages, janitorial costs, or other expenses. But no other operating expense is qualified by the cap "not to exceed," and thus none but management fees supplies a standard for what the parties objectively meant to be a reasonable charge, i.e., fees incurred and not exceeding 5%.
Furthermore, Gibson Dunn's attempt to prove at trial that a prevailing market rate (and thus a customary usage of the term "management fees") exists failed as a matter of fact.
Moreover, in sharp contrast to the equivocal evidence of custom and usage was the proof of the "circumstances surrounding the making of the contract." 1010 Potomac Assocs. v. Grocery Mfrs. of Am., Inc., 485 A.2d 199, 205-06 (D.C.1984). The trial court found, and the record confirms, that the lease was "executed only after intense bargaining and scrutiny by the parties[,] and it seeks to address every conceivable aspect of the landlord and tenant relationship between Gibson Dunn and WSLP." Although operating expenses were only part (even a modest part) of that bargaining, Gibson Dunn expressly raised the issue of management fees in the course of the negotiations. Specifically, in initial drafts it voiced concern in writing over the pass-through of "[o]verhead and profit... paid to ... affiliates of Landlord for services in the Building to the extent the same exceeds the costs of comparable services rendered by unaffiliated third parties on a competitive basis." Gibson Dunn's negotiator, Edward Geisinger, admitted that this "was an explicit request by Gibson Dunn to . . . limit the . . . lease to market [rate] with regard to management fees," and WSLP too understood it that way (its negotiator recognizing that "[t]here was no other affiliated party charge"). WSLP rejected in writing the request to incorporate a "competitive" or market rate standard, even while agreeing to two other operating expense exclusions Gibson Dunn had demanded.
Gibson Dunn's final argument is that reading the lease to allow WSLP routinely to pass through management fees without reference to market rate violates the implied covenant of good faith and fair dealing. See generally Hais v. Smith, 547 A.2d 986, 987-88 (D.C.1988). This argument, however, is no stronger than the assertion that there is an objective measure of a reasonable (or "fair") management fee different from the standard the parties wrote into the lease. As we have seen, Gibson Dunn proved no such rate. It concedes that to satisfy the implied covenant of fair dealing WSLP need only have exercised the discretion conferred on it by the lease
Gibson Dunn further argues that even if the lease permitted WSLP to charge it with a 5% management fee, WSLP exceeded that limit during the years in question by passing through as expenses both management fees of 5% and, separately, the salaries of three on-site management employees.
We reject Gibson Dunn's reliance on the pretrial statement, for the reason alone that the statement is not part of the record on appeal. See Cobb v. Standard Drug Co., 453 A.2d 110, 111 (D.C.1982). Moreover, reading the passages it cites together with the amended complaint, we find no reason to disturb the trial court's finding that the double-billing issue was not raised before trial. Rather, Gibson Dunn alleged in the complaint what it concedes is "a different claim" that WSLP passed through as management fees the salary of the on-site building manager, Dawn Munson, despite the express exclusion from the definition of "operating expenses" for compensation of an "executive" of WSLP, which Gibson Dunn alleged Munson to be.
We also reject the argument that the double-billing claim was tried by implied consent at trial. The trial court's decision on this issue (hence on whether the pleadings must be amended to conform to the proof) is reviewed for abuse of discretion. See Moore, 391 A.2d at 768; Laffey v. Northwest Airlines, Inc., 185 U.S.App. D.C. 322, 371 & n. 370, 567 F.2d 429, 478 & n. 370 (1976). Substantively, the question is whether Gibson Dunn presented evidence which the parties must have recognized as "`aimed at the unpleaded issue,'" Rosenthal v. National Produce Co., 573 A.2d 365, 372 (D.C.1990) (citation omitted); only if that evidence was "clearly apposite to the new issue but not to other matters specified in the pleadings" could WSLP be found to have had adequate notice and an opportunity to litigate it. Moore, 391 A.2d at 768.
Review of the testimony bears out the trial court's conclusion that the issue of double billing — i.e., pass-through of the entire management staffs salary — was not tried. Although Gibson Dunn presented evidence of the management staff salaries, it did so always within the framework of its challenge to Munson's salary as that of a claimed "executive."
E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.13, at 311-12 (2d ed.1998) (footnote and internal quotations omitted).