An Arkansas federal court correctly determined that a manufacturer of vacuum products breached its lease with a warehouse owner by failing to purchase insurance coverage equal to the warehouse property's "full replacement cost," the Eighth Circuit ruled Friday, though partially reversing the court's nearly $14.6 million damages award.

Assessing cross-appeals from the lessee Nilfisk Inc. and property owner Fort Worth Partners LLC, a unanimous three-judge panel noted that following a February 2024 bench trial, the district court's accompanying 47-page order dedicated one paragraph to certain costs "unrebutted" by Nilfisk, though such costs constituted more than 40% of the award.

"Because the district court's calculations are not explained in a way that allows us to fully review whether the award is supported by substantial evidence in the record, we reverse that portion of the damages award and remand it to the district court for further elucidation," U.S. Circuit Judge Ralph Erickson wrote for the panel.

The panel also rejected Fort Worth Partners' own appeal, which argued in part that the district court separately erred because it excluded damages to the property's foundation from the award.

The lease specifically stated in part that "full replacement cost" was the "cost of replacing the premises … less the cost of footings, foundations and other structures below grade."

But Fort Worth Partners' own expert testified that determining how much of the property's footings and foundations are above grade would cost thousands of dollars, the panel noted.

"Even if the court could determine how much of the building's foundation is above grade, Fort Worth Partners' approach would have the court cut the foundation in half at ground level and award damages for only part of a singular foundation," Judge Erickson continued for the panel. "Such an approach is unreasonable."

According to court filings, the lease dispute centers on a March 2022 tornado that inflicted widespread damage upon the warehouse property Nilfisk leased, which comprised two 100,000-square-foot structures, referred to in court filings as the west and east buildings. The west building completely collapsed, while roughly 40,000 square feet of the east building collapsed.

Under the lease, Nilfisk had to procure insurance covering the "full replacement cost" of the warehouse property, but "neither Fort Worth Partners nor Nilfisk attempted to determine the full replacement cost of the building," Friday's decision stated, adding its "appraised value" ranged from $10.5 million to $11.1 million.

The lease also stated that if Nilfisk did not obtain sufficient coverage, Fort Worth Partners could seek additional rent from Nilfisk.

Nilfisk did pay Fort Worth Partners nearly $5.3 million in insurance proceeds, but the property owner kicked off the present litigation in September 2022 seeking additional damages. Days before the February 2024 bench trial before U.S. District Judge Timothy L Brooks, the court partially granted Fort Worth Partners' motion for summary judgment, finding Nilfisk breached its lease agreement by failing to obtain sufficient insurance coverage.

As for the damages, Judge Brooks ruled in his September 2024 bench trial opinion that the full replacement cost net of those insurance proceeds was nearly $13 million, further excluding roughly $1.3 million in foundation repairs. Factoring in more than $1.7 million in unpaid rent and "other damages," Judge Brooks issued a total damages award to Fort Worth Partners of nearly $14.6 million.

The court separately awarded Fort Worth Partners roughly $119,000 in attorney fees and costs thereafter.

On appeal, Nilfisk argued that aside from the unrebutted costs issue, the district court erred because Arkansas' five-year statute of limitations for contract disputes already passed by the time Fort Worth Partners sued, and that Fort Worth Partners failed to mitigate its damages per Arkansas' "doctrine of avoidable consequences."

"While Nilfisk is correct that the statutory period has expired for the policy it procured in 2016, the statutory period has not expired for the policy it obtained in 2021," Judge Erickson further held Friday, adding that "[a]t trial, Nilfisk did not address the doctrine of avoidable consequences."

Though Nilfisk did raise the issue in its motion for summary judgment and posttrial briefing, it "did not specifically introduce any evidence to meet its burden of proving how Fort Worth Partners might have avoided its damages and the reasonableness of doing so," Judge Erickson said. He said it also did not identify what evidence the court had failed to consider upon summary judgment.

As for Fort Worth Partners, it had additionally argued that aside from the court's exclusion of foundation-related costs, it also should not have reduced its request for roughly $170,000 in attorney fees by 25%.

But Friday's panel said the court did not abuse its discretion in doing so, given that the district court found that the property owner ultimately proved half of the damages it alleged.

"If, on remand, the district court revises its damages award, the parties can request reconsideration of the court's attorney's fees award," the panel concluded.

Representatives of the parties did not immediately respond to a request for comment.

U.S. Circuit Judges James B. Loken, Jane Kelly and Ralph R. Erickson sat on the panel.

Fort Worth Partners is represented by Marshall S. Ney, Martin A. Kasten and Kael K. Bowling of Friday Eldredge & Clark LLP.

Nilfisk is represented by Lisa Geary of Quinn Emanuel Urquhart & Sullivan LLP, and by Seth M. Haines and Timothy C. Hutchinson of RMP LLP.

The case is Fort Worth Partners LLC v. Nilfisk Inc. et al., case numbers 24-3224 and 24-3281, in the U.S. Court of Appeals for the Eighth Circuit.