FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FIRST NATIONAL MORTGAGE
COMPANY, a California corporation,
Plaintiff-Appellee, No. 09-16377
v. D.C. No.
5:03-cv-02013-
FEDERAL REALTY INVESTMENT RMW
TRUST,
Defendant-Appellant.
FIRST NATIONAL MORTGAGE
COMPANY, a California corporation,
Plaintiff-Appellant, No. 09-16453
v. D.C. No.
5:03-cv-02013-
FEDERAL REALTY INVESTMENT RMW
TRUST,
Defendant-Appellee.
FIRST NATIONAL MORTGAGE
COMPANY, a California corporation,
Plaintiff-Appellee, No. 09-17012
v. D.C. No.
5:03-cv-02013-
FEDERAL REALTY INVESTMENT RMW
TRUST,
Defendant-Appellant.
2011
2012 FIRST NATIONAL v. FEDERAL REALTY
FIRST NATIONAL MORTGAGE
COMPANY, a California corporation, No. 09-17277
Plaintiff-Appellant, D.C. No.
v. 5:03-cv-02013-
FEDERAL REALTY INVESTMENT RMW
TRUST, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Ronald M. Whyte, Senior District Judge, Presiding
Argued and Submitted
December 7, 2010—San Francisco, California
Filed February 1, 2011
Before: Dorothy W. Nelson, David R. Thompson, and
M. Margaret McKeown, Circuit Judges.
Opinion by Judge Thompson
2016 FIRST NATIONAL v. FEDERAL REALTY
COUNSEL
Patrick Ryan, San Francisco, California, for plaintiff-
appellee/appellant, First National Mortgage Co.
Cannon Shanmugam, Washington, DC, for defendant-
appellant/appellee Federal Realty Investment Trust.
OPINION
THOMPSON, Senior Circuit Judge:
Federal Realty Investment Trust (“Federal Realty”) appeals
the district court’s judgment, pursuant to a jury’s special ver-
dict and the court’s findings of fact and conclusions of law,
in favor of First National Mortgage Company (“First Nation-
al”) in First National’s action for breach of contract. First
National sought to recover for Federal Realty’s anticipatory
breach of a “Final Proposal” signed by the parties with respect
to commercial property in San Jose, California. The court
awarded First National $15.9 million in damages for lost rent
and for the loss of its “put” option under the Final Proposal.
First National cross-appeals and also appeals the district
FIRST NATIONAL v. FEDERAL REALTY 2017
court’s order denying it recovery of reasonable expert witness
fees pursuant to California Code of Civil Procedure § 998(d).
We conclude that the district court did not err in finding
that there was conflicting evidence as to whether the Final
Proposal was meant to be binding and whether the parties
intended the ten-year “put” and “call” options in it to provide
for a ten-year duration of the lease. The district court, there-
fore, properly submitted these questions to the jury. Substan-
tial evidence supports the jury’s special verdict in favor of
First National on both issues.
The district court also did not err in awarding First National
the full benefit of its bargain in the form of damages for both
lost rent and the value of its lost put option. Finally, the dis-
trict court properly determined that First National could not
recover the amount of its expert witness fees under the rele-
vant California statute, but could recover limited expert wit-
ness fees pursuant to federal law. Accordingly, we affirm in
all respects.
I. BACKGROUND
A. Factual history
Federal Realty is a publicly-traded real estate investment
trust that owns and develops shopping centers and mixed-use
projects. First National is a San Jose-based mortgage com-
pany. Beginning in the late 1990s, Federal Realty set out to
develop Santana Row, a mixed-use project in San Jose, which
was intended to be one of the nation’s largest mixed-use proj-
ects. As part of its efforts to develop Santana Row, Federal
Realty sought to acquire the property at issue in this case
(“the Property”). The Property was owned by D&R Partner-
ship (not a party to this suit) and leased by it to First National.
During the relevant time, Hal Dryan had majority ownership
and “absolute control” of both First National and D&R Part-
nership.
2018 FIRST NATIONAL v. FEDERAL REALTY
Over the course of several years, First National and Federal
Realty engaged in protracted negotiations concerning the
Property. At various points in the negotiations, Federal Realty
offered either to buy the Property outright or to enter into a
ground lease for it—i.e., a lease of the underlying land with
the intention of redeveloping the buildings on the property.
The negotiations intensified in the summer of 2000, when the
parties exchanged several proposals regarding the terms for
the ground lease, including a “Counter Proposal” and a “Re-
vised Proposal.” At this time, First National rejected Federal
Realty’s attempt to buy the Property outright, noting that “a
purchase agreement does not address [First National’s] long
term interests.” Finally, on August 25, 2000, Hal Dryan, on
behalf of First National, and Steve Guttman, the President and
CEO of Federal Realty, signed a document entitled “Final
Proposal.”
The Final Proposal is a one-page, nine-paragraph document
regarding a ground lease of the Property. It provides for a rent
of $100,000 per month, with increases of 3% annually. It
gives First National a ten-year “put” option, allowing First
National to require Federal Realty to buy the Property at any
time during the ten years. It also gives Federal Realty a “call”
option at the end of ten years, by which Federal Realty can
require First National to sell it the Property at that time. The
Final Proposal also provides that First National will be reim-
bursed $75,000 to buy out its current lease tenant, New
Things West. Under the Final Proposal, Federal Realty was to
“prepare a legal agreement for First National’s review to
finalize the agreement.” The effective date of the agreement
was to be the “date of vacating premises.” Finally, the last
clause of the Final Proposal provides: “The above terms are
hereby accepted by the parties subject only to approval of the
terms and conditions of a formal agreement.” A copy of the
Final Proposal is attached to this opinion as Appendix A.
Following the signing of the Final Proposal, the parties
engaged in extensive, but ultimately unsuccessful, negotia-
FIRST NATIONAL v. FEDERAL REALTY 2019
tions towards a formal agreement. As part of these negotia-
tions, the parties exchanged several ideas regarding the
proposed lease, with Federal Realty suggesting a lease term
of 34 years, and First National suggesting a lease term of 50
years. The parties also discussed the possibility of an outright
sale, but First National refused to sell the Property for less
than $15 million.
While these negotiations were ongoing, First National gave
New Things West notice to vacate the premises. First
National then informed Federal Realty of the notice to vacate
and asked to be reimbursed for any accompanying loss in
rent. In a letter dated May 11, 2001, Federal Realty rejected
any indication that it had to reimburse First National and
noted that “[b]ecause we have never resolved a number of sig-
nificant business issues relating to the acquisition of the Prop-
erty, we still do not have a binding agreement in place for that
acquisition.”
Soon thereafter, the real estate market took a turn for the
worse, and, although the parties exchanged several more
offers and counteroffers, they were unable to reach an agree-
ment. When these efforts proved unsuccessful, First National
filed this action. It recovered damages for Federal Realty’s
anticipatory breach of the Final Proposal, and this appeal fol-
lowed.
B. Procedural history
In its complaint, First National alleged that Federal Realty
had committed a breach of contract (and anticipatory breach)
by refusing to pay rent and repudiating First National’s “put”
to require Federal Realty to buy the Property. In response,
Federal Realty filed several motions to dismiss and for sum-
mary judgment. As relevant to this appeal, the district court
rejected Federal Realty’s argument that the Final Proposal
was not binding because of the last clause calling for a “for-
mal agreement.” According to the court, although the extrin-
2020 FIRST NATIONAL v. FEDERAL REALTY
sic evidence presented “persuasively suggest[ed] that the
Final Proposal was conditional and that neither party intended
otherwise,” the last clause was reasonably susceptible to dif-
ferent interpretations, thereby precluding summary judgment.
The court also rejected Federal Realty’s argument that the
Final Proposal was not binding because it was missing an
essential provision—the duration of the lease. In doing so, the
court allowed First National to amend its complaint to allege
that “the ten year ‘put’ and ‘call’ provisions . . . were intended
by the parties, and each of them, to, and did, have a special
meaning, that is, to establish a lease term of ten years.” After
examining the extrinsic evidence, the court concluded that
First National’s interpretation of the events surrounding the
put and call options was “plausible” and sufficient for the
question to go to the jury.
The liability phase of the case was tried to a jury in June
2006. The jury found in favor of First National on its anticipa-
tory breach claim. The jury found that the parties intended the
Final Proposal to be an enforceable agreement, and intended
the put and call options to set a ground lease duration of ten
years. The district court subsequently denied Federal Realty’s
motion for judgment as a matter of law or, in the alternative,
a new trial, concluding there was sufficient evidence to sup-
port the jury’s special findings.
The damages phase was tried to the court in April 2008.
The court ultimately awarded First National damages of
$15,901,274. Out of that amount, approximately $10.6 mil-
lion, including interest, was based on lost rent from the
ground lease, and approximately $5.2 million was based on
Federal Realty’s breach of First National’s put option. The
court specifically found that to receive the “full benefit of its
bargain,” First National was entitled to recover damages for
both breach of the lease and breach of its put option.
The district court also denied First National’s motion to
recover certain expert witness fees under California Code of
FIRST NATIONAL v. FEDERAL REALTY 2021
Civil Procedure § 998(d), which was based on First National’s
pre-trial offer to compromise that Federal Realty rejected. The
court found that First National reasonably incurred $358,811
in expert witness fees. However, First National could not
recover those fees, but was limited to a recovery of expert
witness fees under federal law, pursuant to this court’s deci-
sion in Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167-68 (9th
Cir. 1995).
II. DISCUSSION
At the outset, we reject First National’s argument that
because there was a full trial on the merits, Federal Realty is
precluded from challenging the district court’s denial of its
motions for summary judgment. See F.B.T. Prods., LLC v.
Aftermath Records, 621 F.3d 958, 963 (9th Cir. 2010) (“A
district court’s denial of summary judgment is subject to
review on appeal, despite full trial on the merits, ‘where the
district court made an error of law that, if not made, would
have required the district court to grant the motion.’ ” (cita-
tion omitted)). Moreover, to preserve this issue for appeal,
Federal Realty did not have to present it in a motion for judg-
ment as a matter of law. See id. at 962-63 (holding that an
issue of law that “does not rest on the sufficiency of the evi-
dence to support the jury’s verdict” need not be raised in a
motion for judgment as a matter of law to preserve the issue
for appeal). Rather, all Federal Realty had to do was “raise the
argument at some point before the judge submitted the case
to the jury,” which it did. See id. at 963. Accordingly, the dis-
trict court’s determinations that portions of the Final Proposal
were ambiguous are “ ‘question[s] of law, subject to indepen-
dent review on appeal.’ ” See id. (citation omitted).
A. Questions of law
1. Conditional nature of the Final Proposal
[1] Creation of a valid contract requires mutual assent.
Kruse v. Bank of Am., 202 Cal. App. 3d 38, 59 (1988).
2022 FIRST NATIONAL v. FEDERAL REALTY
“Where . . . there is a manifest intention that the formal agree-
ment is not to be complete until reduced to a formal writing
to be executed, there is no binding contract until this is done.”
Smissaert v. Chiodo, 163 Cal. App. 2d 827, 830-31 (1958).
Thus, an “agreement to agree,” without more, is not a binding
contract. Autry v. Republic Prods., 30 Cal. 2d 144, 151-52
(1947).
[2] However, an agreement is not unenforceable merely
because it is subject to the approval of a formal contract. See,
e.g., Gavina v. Smith, 25 Cal. 2d 501, 504 (1944) (an exercise
of an option created a binding lease, even though a formal
instrument was to be prepared and signed later); Pac.
Improvement Co. v. Jones, 164 Cal. 260, 264 (1912) (finding
a binding contract for a lease, even though the testimony
showed that “the parties contemplated substituting for this
instrument a more formal lease”); Cappelmann v. Young, 73
Cal. App. 2d 49, 51-53 (1946) (finding an agreement to be a
binding lease, even though it provided that “[a] proper lease
shall be drawn within ten days”). Rather, “[w]hether a writing
constitutes a final agreement or merely an agreement to make
an agreement depends primarily upon the intention of the par-
ties. In the absence of ambiguity this must be determined by
a construction of the instrument taken as a whole.” Smissaert,
163 Cal. App. 2d at 830.
[3] In this case, the court properly rejected Federal Real-
ty’s argument that the Final Proposal was not binding. The
Final Proposal clearly states that its terms “are hereby
accepted by the parties subject only to approval of the terms
and conditions of a formal agreement” (emphases added).1 In
this regard, it is different from Rennick v. O.P.T.I.O.N. Care,
Inc., 77 F.3d 309 (9th Cir. 1996), on which Federal Realty
1
Because both parties were involved in drafting the Final Proposal, we
reject Federal Realty’s suggestion that it should be construed against First
National. See Mitchell v. Exhibition Foods, Inc., 184 Cal. App. 3d 1033,
1042 (1986).
FIRST NATIONAL v. FEDERAL REALTY 2023
relies. In finding no binding contract in Rennick, we noted
that the document in that case was titled “letter of intent” and
specifically provided that “this letter of intent is of no binding
effect.” Id. at 315-16. In this case, the document is titled
“Final Proposal,” and it specifically omits Federal Realty’s
standard non-binding clause, which it had inserted in earlier
drafts.
[4] Moreover, contrary to Federal Realty’s argument, call-
ing something a “proposal,” instead of a “contract” or a
“lease,” does not necessarily mean it was not meant to be
binding, especially where the circumstances suggest other-
wise. Cf. id. at 315 (“[C]alling a document ‘letter of intent’
implies, unless circumstances suggest otherwise, that the par-
ties intended it to be a nonbinding expression in contempla-
tion of a future contract, as opposed to its [sic] being a
binding contract.”). Here, the circumstances demonstrate that
the parties went from a “Counter Proposal,” to a “Revised
Proposal,” to a “Final Proposal.” In light of this, it cannot be
said, as a matter of law, that the Final Proposal was not meant
to be binding.
In reaching this conclusion, we do not question Federal
Realty and the amici curiae’s assertion that non-binding pre-
liminary agreements play an important role in real estate
transactions. We do note, however, that at times it is equally
important for the parties to be certain that their interim agree-
ments in the midst of protracted negotiations can be enforced.
As the California Supreme Court has noted,
[w]here the parties . . . have agreed in writing upon
the essential terms of the lease, there is a binding
lease, even though a formal instrument is to be pre-
pared and signed later. The formal instrument may
be more convenient for purposes of recordation and
better designed to prevent misunderstanding than the
other writings but it is not essential to the existence
of the lease. “The mere fact that a written lease was
2024 FIRST NATIONAL v. FEDERAL REALTY
in contemplation does not relieve either of the con-
tracting parties from the responsibility of a contract
which was already expressed in writing. When one
party refuses to execute the lease according to the
contract thus made, the other has a right to fall back
on the written propositions as originally made, and
the absence of the formal agreement contemplated is
not material.”
Gavina, 25 Cal. 2d at 504 (internal citations omitted). As
such, the fact that the parties in this case were negotiating a
new contract to replace the Final Proposal did not relieve
either of them from their obligations under the Final Proposal,
which was an existing contract.
2. Omission of an essential element
[5] To comply with the Statute of Frauds, there must be
“some note or memorandum . . . subscribed by the party to be
charged.” Cal. Civ. Code § 1624(a). “A memorandum satis-
fies the statute of frauds if it identifies the subject of the par-
ties’ agreement, shows that they made a contract, and states
the essential contract terms with reasonable certainty.” Ster-
ling v. Taylor, 40 Cal. 4th 757, 766 (2007). In this case, even
assuming the Final Proposal falls within the Statute of Frauds
as Federal Realty contends, we reject the argument that it is
not binding because it omits an essential term in the form of
the duration of the lease.
[6] The mere fact that a lease term is “essential” does not
mean that it has to be express in the contract. On the contrary,
although extrinsic evidence cannot be used to supply an
essential term, it can be used “to explain essential terms that
were understood by the parties but would otherwise be unin-
telligible to others.” Id. at 767. Indeed, “California courts
have not hesitated to imply a term of duration when the nature
of the contract and surrounding circumstances afford a rea-
FIRST NATIONAL v. FEDERAL REALTY 2025
sonable ground for such implication.” Consol. Theatres, Inc.
v. Theatrical Stage Emps. Union, 69 Cal. 2d 713, 727 (1968).
[7] In this case, the district court did not err in allowing
extrinsic evidence to be introduced to determine whether the
lease duration was completely absent or whether it could be
implied from the ten-year put and call options. California has
long abandoned a rule that would limit the interpretation of a
written instrument to its four corners. See Pac. Gas & Elec.
Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33,
37 (1968). Instead, under the California parol evidence rule,
“[t]he test of admissibility of extrinsic evidence to explain the
meaning of a written instrument is not whether it appears to
the court to be plain and unambiguous on its face, but whether
the offered evidence is relevant to prove a meaning to which
the language of the instrument is reasonably susceptible.” Id.
Thus,
[w]here the meaning of the words used in a contract
is disputed, the trial court must provisionally receive
any proffered extrinsic evidence which is relevant to
show whether the contract is reasonably susceptible
of a particular meaning. Indeed, it is reversible error
for a trial court to refuse to consider such extrinsic
evidence on the basis of the trial court’s own conclu-
sion that the language of the contract appears to be
clear and unambiguous on its face. Even if a contract
appears unambiguous on its face, a latent ambiguity
may be exposed by extrinsic evidence which reveals
more than one possible meaning to which the lan-
guage of the contract is yet reasonably susceptible.
Morey v. Vannucci, 64 Cal. App. 4th 904, 912 (1998) (inter-
nal citations omitted).
The dispute in this case is whether the Final Proposal pro-
vides for the duration of the lease. Federal Realty contends
that it does not. First National, on the other hand, argues that
2026 FIRST NATIONAL v. FEDERAL REALTY
a ten-year duration is implied through a combined reading of
the ten-year put and call provisions. The question for the
court, therefore, is whether the language of the Final Proposal
is “reasonably susceptible” of either one of the two interpreta-
tions. Pac. Gas & Elec. Co., 69 Cal. 2d at 37.
[8] We conclude that it is. By its terms, the Final Proposal
allows First National to compel Federal Realty to buy the
Property at any time within ten years and Federal Realty to
compel First National to sell the Property to it at the end of
ten years. As extrinsic evidence showed, the Property was
crucial to Federal Realty’s development of Santana Row.
Moreover, the parties agreed to enter into a lease—instead of
an outright sale—due to First National’s reluctance to sell
immediately. It was understood that as soon as Federal Realty
was able to force a sale of the Property (i.e., at the end of ten
years), it would do so. Accordingly, the court did not err in
concluding that the Final Proposal was “reasonably suscepti-
ble” of either one of the two interpretations asserted by the
parties, and therefore “extrinsic evidence relevant to prove
either of such meanings [was] admissible.” See id. at 40.
[9] The district court also did not err in letting the jury
resolve the conflict. “Where the interpretation of contractual
language turns on a question of the credibility of conflicting
extrinsic evidence, interpretation of the language is not solely
a judicial function. As trier of fact, it is the jury’s responsibil-
ity to resolve any conflict in the extrinsic evidence properly
admitted to interpret the language of a contract.” Morey, 64
Cal. App. 4th at 912-13 (internal citations omitted).
B. Sufficiency of the evidence
We review de novo the denial of a motion for judgment as
a matter of law. Lakeside-Scott v. Multnomah Cnty., 556 F.3d
797, 802 (9th Cir. 2009). We view the evidence in the light
most favorable to the party in whose favor the jury returned
a verdict and draw all reasonable inferences in its favor. Id.
FIRST NATIONAL v. FEDERAL REALTY 2027
The verdict will be upheld if it is supported by substantial evi-
dence, “even if it is also possible to draw a contrary conclu-
sion.” Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002).
“ ‘Although the court should review the record as a whole, it
must disregard evidence favorable to the moving party that
the jury is not required to believe, and may not substitute its
view of the evidence for that of the jury.’ ” Id. (citation omit-
ted).
[10] In this case, substantial evidence supports the jury’s
finding that the parties intended the Final Proposal to be an
enforceable agreement. Michael Rubenstein, a minority owner
of both the D&R Partnership and First National, and one of
the negotiators of the Final Proposal on behalf of First
National, testified that when Guttman learned he could not
enforce an earlier version of the agreement because it was not
signed, he told First National that from that point on, he
wanted offers signed so that he could hold First National to
them. Guttman allegedly stated: “If we’re going to do any-
thing together, I want both parties signing off [on] the docu-
ment, and I want an enforceable contract now.” Thereafter,
Guttman sent First National an offer dated August 24, 2000
which, for the first time in the negotiations, omitted Federal
Realty’s theretofore standard non-binding provision. Guttman
allegedly wanted language that would ensure that “there was
no way either party . . . could change any of the major points
in the agreement.” Soon after that, the Final Proposal was
signed by the executive officers of both companies.
[11] Dryan testified that his understanding of the “subject
only to approval” clause of the Final Proposal was that “the
only way that the Final Proposal can be changed or modified,
or even replaced, was by agreement upon the formal agree-
ment, and if there was no formal agreement, then we stay with
the Final Proposal, which was a contract.” Similarly, Ruben-
stein testified that the parties intended the Final Proposal to
concern the major points of the contract and the “legalese and
2028 FIRST NATIONAL v. FEDERAL REALTY
the minor points” would be taken care of in the formal agree-
ment.
[12] As soon as the Final Proposal was signed, First
National held an employee meeting to announce that it had
reached “an agreement with Federal Realty” and that it
“would be moving before or by December 30th of 2000.”
Federal Realty also appears to have treated the Final Proposal
as binding. Within a month of signing the Final Proposal,
Federal Realty included in its internal cost reports costs for
tenant buyouts, brokerage costs, and other costs for the acqui-
sition of the Property.
[13] Substantial evidence also supports the jury’s finding
that the parties intended the put and call options in the Final
Proposal to set a ground lease duration of ten years. For
example, Dryan testified that the parties discussed that the
lease duration would be ten years and that it was “Guttman’s
suggestion” to use the combination of the put and call options
to set the lease duration. There was also testimony at trial that
Guttman told First National that Federal Realty “would” exer-
cise the call option at the end of the ten years if the put option
was not exercised first. According to Rubenstein, “that was
[Federal Realty’s] insurance policy in case [First National]
didn’t exercise [its] put within the ten-year lease term.” As the
district court observed, because Federal Realty intended to put
millions of dollars into the improvement of the Property, the
jury was entitled to credit the above testimony and to find that
the call provision assured Federal Realty that it would own
the Property no later than at the end of the ten years.
[14] Based on the above, substantial evidence supports the
jury’s verdict with respect to the binding nature of the Final
Proposal and the duration of the lease. Even if the jury was
presented with conflicting evidence as to these issues, it was
the jury’s province to make any credibility determinations and
to resolve any factual disputes. See Pavao, 307 F.3d at 918.
FIRST NATIONAL v. FEDERAL REALTY 2029
Accordingly, the district court did not err in denying Federal
Realty’s motion for judgment as a matter of law.
C. Damages award
[15] With regard to the amount of damages, Federal Realty
only challenges the district court’s conclusion that First
National could recover both lost rent and damages for the
breach of the put option.2 According to Federal Realty, these
two awards are “irreconcilable” because: (1) by awarding
damages for the full implied ten-year lease term, the court
must have assumed that First National would never have exer-
cised its put option, but (2) by awarding damages for the
breach of the put option based on its value at the time of the
breach, the district court must have assumed that First
National would have immediately exercised its put option.
Federal Realty also appears to argue that by deciding to sue
immediately, First National was electing to treat the contract
as repudiated, and thus should not recover for the loss of the
put option.
Federal Realty’s reasoning, however, is faulty. The district
court never assumed that First National would have exercised
its put option on the date of the breach. In fact, the district
court rejected the suggestion that First National’s treatment of
repudiation as a breach had the effect of an exercise of the
option. Instead, what the court did is value the put option as
of the date of the breach.
Similarly, Federal Realty’s argument as to the “election of
remedies” is misplaced. When one party repudiates a contract,
the injured party can either “treat the repudiation as an antici-
2
We review de novo the legal conclusion that damages are available,
United States v. Timberland Paving & Constr. Co., 745 F.2d 595, 599 (9th
Cir. 1984), and review for clear error the district court’s factual findings
in support of an award of damages, Bergen v. F/V St. Patrick, 816 F.2d
1345, 1347 (9th Cir. 1987).
2030 FIRST NATIONAL v. FEDERAL REALTY
patory breach and immediately seek damages for breach of
contract, thereby terminating the contractual relation between
the parties,” or he can “treat the repudiation as an empty
threat, wait until the time for performance arrives and exercise
his remedies for actual breach if a breach does in fact occur
at such time.” Taylor v. Johnston, 15 Cal. 3d 130, 137 (1975).
In this case, the district court found that First National
decided to treat the repudiation as an anticipatory breach.
Having done so, First National was still entitled to recover the
loss of the bargain represented by the contract.
[16] The full benefit of the Final Proposal for First
National would have been a complete ten-year lease term fol-
lowed by a forced sale to Federal Realty. Thus, evidence at
trial demonstrated that a “rational economic actor” in First
National’s position, seeing a virtually guaranteed 12% yield
on investment, would have waited until the end of the lease
to exercise the put option. This conclusion is not undercut by
Dryan and Rubenstein’s inability to affirmatively say at trial
when they would have exercised the put option. As the district
court noted, because it was Federal Realty’s breach that took
away First National’s ability to choose when to exercise the
option, Federal Realty cannot benefit from that uncertainty.
See Zinn v. Ex-Cell-O Corp., 24 Cal. 2d 290, 297-98 (1944);
Macken v. Martinez, 214 Cal. App. 2d 784, 790 (1963).
[17] Finally, the court properly valued the option as of the
date of the breach. As the court explained, the mere fact that
First National would have exercised its option at some partic-
ular time in the future does not mean that it gets to receive the
value as of that date. Rather, as already noted, First National
was faced with a choice: (1) treat the repudiation as a breach
and seek damages, or (2) wait until the time of performance.
Thus, First National could have vacated the premises and
waited until ten years later to exercise its option. In that case,
it would have been entitled to the value of the option as of
that date. By deciding instead to treat the repudiation as a
breach and sue immediately, First National elected to have its
FIRST NATIONAL v. FEDERAL REALTY 2031
damages valued as of the date of the breach. See Lucente v.
IBM Corp., 310 F.3d 243, 259-63 (2d Cir. 2002) (concluding
that where plaintiff decided to treat defendant’s repudiation as
a breach of his restricted stock and stock options, he was only
entitled to damages as “measured from the date of the
breach”); Scully v. US WATS, Inc., 238 F.3d 497, 512-13 (3d
Cir. 2001) (awarding damages as of the date of the breach and
noting that an award of damages based on a prediction of
what a stock’s price will be in the future “would be particu-
larly problematic” because of the amount of speculation for
which it calls); cf. Hermanowski v. Acton Corp., 729 F.2d
921, 922 (2d Cir. 1984) (per curiam) (concluding that where
plaintiff ignored the repudiation, he was entitled to damages
based on the “difference between the market value of the
stock and the option price” on the date he unsuccessfully tried
to invoke the option).
Accordingly, the district court did not err in awarding First
National damages for both lost rent and loss of the put option,
and it did not err in valuing the put option as of May 11, 2001
—the date of the breach.
D. First National’s recovery of expert witness fees
[18] In its separate appeal, First National argues the district
court erred in following Aceves, 68 F.3d 1160, and applying
federal law to First National’s request for reimbursement of
reasonable expert witness fees. We review the district court’s
choice of law de novo. Id. at 1167.
[19] In Aceves, a defendant whose offer of judgment had
been rejected sought reimbursement of its expert witness fees
under the applicable provision of the California offer-of-
judgment statute, Cal. Civ. Proc. Code § 998(c). 68 F.3d at
1167. At the outset, the Aceves court noted that “[f]ederal and
California offer of judgment rules differ in the level of reim-
bursement for expert witness costs they allow.” Id. Whereas
California allows a defendant to recover reasonable expert
2032 FIRST NATIONAL v. FEDERAL REALTY
witness fees in full, Cal. Civ. Proc. Code § 998(c), federal law
allows a defendant to recover only forty dollars per day per
witness, 28 U.S.C. § 1821(b). Aceves, 68 F.3d at 1167. The
Aceves court held that “[b]ecause reimbursement of expert
witnesses fees is an issue of trial procedure, . . . . federal law
should control the reimbursement of expert witnesses in fed-
eral courts sitting in diversity jurisdiction.” Id. at 1167-68.
The court added that this holding was “in accord with the
holdings of several other circuits.” Id. at 1168 (citing cases
from the First, Tenth, and Eleventh Circuits).
[20] Aceves is controlling here. First National is seeking
reimbursement of its expert witness fees under the provision
of the California offer-of-judgment statute applicable to plain-
tiffs, Cal. Civ. Proc. Code § 998(d). Just like in Aceves,
“[f]ederal and California offer of judgment rules differ in the
level of reimbursement for expert witness costs they allow.”
68 F.3d at 1167. Whereas California allows the plaintiff to
recover reasonable expert witness fees incurred, Cal. Civ.
Proc. Code § 998(d), federal law allows the plaintiff to
recover only forty dollars per day per witness, 28 U.S.C.
§ 1821(b). Indeed, the applicable federal rule is the same as
it was in Aceves because expert witnesses in federal court are
entitled to forty dollars per day regardless of whether they are
called by the prevailing defendant or plaintiff. See 28 U.S.C.
§ 1821(b).
First National’s argument that applying the federal rule in
this case would lead to forum shopping is unavailing. The
Aceves court rejected that argument with respect to 28 U.S.C.
§ 1821(b). See 68 F.3d at 1168 (“More important, we think it
exceedingly unlikely that section 1821(b) provides litigants an
incentive to sue in or remove to federal courts.” (emphasis
added)). First National’s argument that the Aceves court failed
to provide any basis for this conclusion is equally not persua-
sive. On the contrary, the Aceves court noted that its decision
that “federal law should control the reimbursement of expert
witnesses in federal courts sitting in diversity jurisdiction”
FIRST NATIONAL v. FEDERAL REALTY 2033
was “in accord with the holdings of several other circuits.” Id.
(citing Chaparral Resources, Inc. v. Monsanto Co., 849 F.2d
1286, 1291-92 (10th Cir. 1988); Kivi v. Nationwide Mut. Ins.
Co., 695 F.2d 1285, 1289 (11th Cir. 1983); and Bosse v. Lit-
ton Unit Handling Sys., 646 F.2d 689, 695 (1st Cir. 1981)).
[21] Accordingly, we affirm the district court’s denial of
expert witness fees calculated according to California Code of
Civil Procedure § 998(d).
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s
decision to allow the jury to determine whether the parties
intended the Final Proposal to be a binding contract and
whether they intended the put and call options in it to create
a ten-year lease term. Similarly, we affirm the district court’s
denial of Federal Realty’s motion for judgment as a matter of
law; the jury’s special verdict is supported by substantial evi-
dence. We also affirm the district court’s award to First
National of damages for both lost rent and the value of its lost
put option, and we affirm the district court’s order regarding
the bill of costs. Finally, because Aceves, 68 F.3d 1160, is
controlling, we affirm the district court’s denial of First
National’s motion for recovery of expert witness fees calcu-
lated under California Code of Civil Procedure § 998(d).
AFFIRMED.
2034 FIRST NATIONAL v. FEDERAL REALTY
APPENDIX A
Final Proposal
1. Ground lease at $100,000 per month. Lease to include
increases of three (3%) annually.
2. First National is given a 10 year put at a capitalization
rate of 9% at the then current annual rental. Federal
Realty to cooperate with tax free exchange.
3. Federal Realty to be given a call at the end of ten years
at a 9% capitalization rate.
4. First National to be offered an option to lease office
space of up to 5000 square feet in the new Santana
Row complex at $4.00 per square foot per month, sub-
ject to the terms and conditions of a new lease.
5. First National to be reimbursed $75,000 to buy out the
current lease holder, New Things West.
6. Federal Realty to pay for the moving expenses of First
National Mortgage not to exceed $25,000.00.
7. Federal Realty to prepare a legal agreement for First
National’s review to finalize the agreement.
8. Effective date of agreement as of date of vacating
premises.
9. The above agreement must be accepted via fax to 408-
249-9214 no later than 10:00 a.m. California time on
August 25, 2000, at which time this counter offer will
automatically expire.
The above terms are hereby accepted by the parties subject
only to approval of the terms and conditions of a formal
agreement.