                                     PUBLISHED

                      UNITED STATES COURT OF APPEALS
                          FOR THE FOURTH CIRCUIT


                                      No. 17-2226


NCO FINANCIAL SYSTEMS, INCORPORATED, now known as EGS Financial
Care, Inc.,

                    Plaintiff - Appellee,

             v.

MONTGOMERY PARK, LLC,

                    Defendant - Appellant.


Appeal from the United States District Court for the District of Maryland, at Baltimore.
George L. Russell, III, District Judge. (1:11-cv-01020-GLR)


Argued: November 1, 2018                                      Decided: March 15, 2019
                              Amended: March 15, 2019


Before GREGORY, Chief Judge, and NIEMEYER and HARRIS, Circuit Judges.


Vacated and remanded by published opinion. Judge Niemeyer wrote the opinion, in
which Chief Judge Gregory and Judge Harris joined.


ARGUED: Howard G. Goldberg, GOLDBERG & BANKS, PC, Baltimore, Maryland,
for Appellant. Andrew D. Levy, BROWN, GOLDSTEIN & LEVY, LLP, Baltimore,
Maryland, for Appellee. ON BRIEF: Joshua R. Treem, Kevin D. Docherty, Anthony J.
May, BROWN, GOLDSTEIN & LEVY, LLP, Baltimore, Maryland, for Appellee.
NIEMEYER, Circuit Judge:

      This case, which involves disputes between parties to a 12-year commercial lease

of office space in Baltimore, Maryland, comes to us for a second time. In the prior

appeal, we held that NCO Financial Systems, Inc. (the lessee) had failed to properly

exercise its right of early termination of the lease agreement between it and Montgomery

Park, LLC (the lessor) and had, by failing to pay rent thereafter, breached the agreement.

NCO Fin. Sys., Inc. v. Montgomery Park, LLC, 842 F.3d 816, 821–23 (4th Cir. 2016).

Accordingly, we remanded the case for further proceedings on Montgomery Park’s claim

for damages.

      On remand, the district court conducted a bench trial at which it received evidence

regarding Montgomery Park’s damages and whether Montgomery Park had, as required

by the lease agreement, used “reasonable commercial efforts” to mitigate its damages.

The court concluded that Montgomery Park failed to use reasonable commercial efforts

to mitigate its damages and that this failure was a condition precedent to any damage

recovery. It therefore denied Montgomery Park any damages for NCO’s breach.

       On appeal, Montgomery Park contends that the district court erred (1) by

concluding that the obligation to mitigate damages was a condition precedent to the

recovery of any damages and therefore that the failure to satisfy that condition completely

barred recovery, rather than merely reduced the amount of recoverable damages, and

(2) by concluding that Montgomery Park’s obligation to mitigate damages meant that it

“was under a contractual duty to give special care and attention” to the space previously



                                            2
leased by NCO and therefore that marketing efforts directed at leasing all vacant spaces

in the building were largely irrelevant.

       We agree with Montgomery Park on both points and therefore vacate the district

court’s judgment and remand for further proceedings consistent with this opinion. First,

we conclude that the district court misconstrued the lease agreement and misapplied

Maryland law in concluding that Montgomery Park had a duty to “endeavor to re-let the

premises and minimize [its] damages as a condition precedent to recovering” against

NCO. (Emphasis added). Because the lease agreement’s language incorporated the

common law mitigation-of-damages doctrine, which holds that a plaintiff cannot recover

damages which it could have reasonably avoided, Montgomery Park’s recovery should

only have been reduced by the amount of rent that NCO could demonstrate would have

been recovered by reasonable efforts to re-let the space. Second, we conclude that the

district court, in evaluating the commercial reasonableness of Montgomery Park’s

mitigation efforts, applied the wrong standard.      Reasonable commercial efforts to

mitigate damages did not require Montgomery Park to favor NCO’s space over other

vacant space in the building.         Rather, commercial reasonableness only required

Montgomery Park to reasonably market NCO’s space on an equal footing with the other

spaces that it was seeking to rent.


                                             I

       Beginning on March 15, 2003, Montgomery Park leased over 100,000 square feet

of office space to NCO in a building located on Washington Park Boulevard in


                                             3
Baltimore, Maryland. The initial term of the lease was 12 years, but NCO had a limited

right to terminate the lease after 8 years, provided that it gave timely notice and made

timely payment of a termination fee equal to 10 months’ rent.

       In the prior appeal in this case, we concluded that while NCO manifested its intent

to exercise the early termination option, it failed to satisfy the lease agreement’s

conditions precedent for doing so.     We therefore held that NCO had a continuing

obligation to pay rent, even though it had vacated the premises. Thus, we remanded the

case to the district court for further proceedings on Montgomery Park’s claim for

damages. See NCO Fin. Sys., 842 F.3d at 822–25.

       On remand, the district court conducted a bench trial on damages, at which it

considered whether Montgomery Park had used “reasonable commercial efforts” to

mitigate its damages, as required in § 14.03 of the lease agreement. That section, entitled

“Remedies,” authorized Montgomery Park to re-let the NCO premises once NCO

breached the lease and vacated the building. It provided further:

      Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be
      diminished by reason of, any failure by Landlord to relet the Premises or
      any failure by Landlord to collect any rent due upon such reletting, but
      Landlord does agree to use reasonable commercial efforts to mitigate
      damages caused by any Event of Default or if Tenant shall surrender the
      Premises back to Landlord for such purpose. No action taken by the
      Landlord under the provisions of this section shall operate as a waiver of
      any right which the Landlord would otherwise have against the Tenant for
      the Rent hereby reserved or otherwise, and the Tenant shall at all times
      remain responsible to the Landlord for any loss and/or damage suffered by
      the Landlord by reason of any Event of Default, provided that in no event
      shall Tenant be liable for consequential damages . . . .




                                            4
(Emphasis added). After concluding that this provision required Montgomery Park to

take commercially reasonable steps to re-let the NCO space “from the date that NCO

vacated the property,” the court found that Montgomery Park had not used reasonable

commercial efforts to find a replacement tenant for the NCO space. In articulating the

standard that it applied, the court stated that “if you had the real estate space that you

need to lease, reasonable efforts require that you advertise it and promote it specifically

and not generally as part of an overall scheme to fill a larger vacant space.” (Emphasis

added). The court concluded that Montgomery Park had failed to target its efforts,

emphasizing that although Montgomery Park had taken substantial steps to market the

building as a whole — which included NCO’s space — it had done much less to market

the NCO space specifically:

       Montgomery Park . . . engaged in significant effort, including the creation
       of brochures; hanging banners; engaging with prospective tenants;
       conducting tours of the premises, including several tours of the NCO space;
       and holding meetings regarding leasing the Montgomery space in general.
       But these efforts were designed only to market Montgomery Park space as
       a whole, with no serious effort to target or re-lease NCO space, as they
       were obligated to do.

(Emphasis added).     The court added that Montgomery Park’s monthly marketing

meetings “were never geared . . . to treat the NCO premises any different than any other

premises within the Montgomery Park property” and that Montgomery Park’s marketing

reports, which had been admitted into evidence, “shed little, if any, light on a plan to

specifically market the NCO premises.” The court also dismissed the instances where

Montgomery Park offered the NCO space to prospective tenants, citing the fact that



                                            5
Montgomery Park had, among other things, also offered those prospects alternative

spaces:

       The prospects identified by Montgomery Park as being interested in the
       NCO premises . . . were offered space either while NCO still occupied the
       premises; were offered premises other than the NCO premises; when
       offered the NCO premises, the NCO premises was listed as an alternative
       space, a last alternative space for leasing, or almost last alternative space
       for leasing, or the offer failed to provide any benefit or provided little
       benefit to NCO regarding its rental obligations because the offer included
       free rent. As a result, such efforts did not meet the commercial reasonable
       efforts required under the lease or by industry standard.

In short, under the standard that the district court applied, “Montgomery Park was under a

contractual duty to give special care and attention to NCO,” and thus generalized efforts

directed at leasing the building as a whole were insufficient.

       The district court also took issue with Montgomery Park’s lack of a formalized

marketing plan, noting that “[n]o written marketing plan was ever created related to the

NCO space or to Montgomery Park, the property, in general.” The court reasoned that:

       [A]s part of its obligation to exercise reasonable commercial efforts,
       [Montgomery Park] was required by contract or by industry standards to
       put a written marketing plan in place given the challenges of the particular
       property. This marketing plan would include an evaluation of the NCO
       space, a list of prospects for the NCO space, specific timetables and goals
       for re-listing the NCO space, and methods of advertising the NCO space.

The court accordingly concluded that “the failure to create a marketing plan for the NCO

premises was commercially unreasonable at the outset of the vacancy.”

       Further, the court pointed out that Montgomery Park failed to update its “CoStar”

listing to reflect the vacancy of the NCO premises. CoStar is an online database used by

real estate brokers and owners to list available commercial properties and is considered to


                                             6
be “the leading provider of commercial real estate information and data” in the United

States. Montgomery Park maintained an active CoStar listing but, after NCO vacated the

property, it did not update the listing to reflect the change, meaning that the listing

continued to show the NCO premises as occupied. The district court concluded that “the

failure to advertise the NCO premises as available on CoStar was intentional” and that

such failure was motivated by Montgomery Park’s “concern[] that listing an additional

100,000 square feet as being available on CoStar . . . would lead to a bad impression of

the building, thus stagnating leasing opportunities.” The court noted that to address this

concern “Montgomery Park . . . could have [instead] listed the NCO premises as

available and simply made space that had been deemed available for leasing

unavailable.”

      Finally, the court found that Montgomery Park made no significant efforts to

subdivide the NCO space, concluding that “Montgomery Park failed to conduct a cost-

benefit analysis of subdividing the space to determine whether such mitigation was even

practical” and that “the failure to create such an analysis was . . . commercially

unreasonable.”

      Having concluded that Montgomery Park failed to use commercially reasonable

efforts to re-let the NCO space, the district court then held that such failure precluded

Montgomery Park from recovering any damages whatsoever. The court reasoned that “if

a tenant has abandoned the leased premises and there is a breach of contract action for

damages, like in this case, the landlord must endeavor to re-let and minimize his damages

as a condition precedent to recovering against the original tenant.” (Emphasis added)

                                            7
(citing Circuit City Stores, Inc. v. Rockville Pike Joint Venture Ltd. P’ship, 829 A.2d 976

(Md. 2003)).     Thus, the court reasoned, “from and after the time that the landlord

breached its contractual obligations to mitigate damages, the landlord is entitled to no

further payment from the tenant.” It concluded that “[b]ecause . . . Montgomery Park

breached the lease from the date that NCO vacated the property due to [its] failure to use

reasonable commercial efforts to [re-let] the NCO premises, . . . Montgomery Park is not

entitled to any damages.”

       From the district court’s judgment dated October 11, 2017, Montgomery Park

filed this appeal.


                                             II

       Montgomery Park contends that the requirement in the lease agreement that it use

reasonable commercial efforts to mitigate damages is not, as the district court held, “a

condition precedent to [its right] to recover its lost rent due to [NCO’s] default” and that

the district court accordingly erred in treating it as such. In support of its position,

Montgomery Park contrasts the language at issue here with the language we addressed in

the prior appeal, noting that the “language employed with regard to [its] obligation to use

reasonable commercial efforts contains no language similar to the conditional language

employed with regard to the early termination provision.”         Rather than imposing a

condition precedent to any recovery, Montgomery Park argues that the lease agreement

incorporated the mitigation-of-damages doctrine, as that doctrine has been applied under

Maryland contract law. And proper application of that doctrine here would require NCO


                                             8
to “prove the net loss resulting from Montgomery Park’s failure to [mitigate damages]”

and the district court then to reduce recovery by that amount. In short, Montgomery Park

argues that the district court erred by foreclosing recovery altogether.

       NCO amplifies the district court’s position, contending that when both parties to a

contract breach their obligations, courts should decline to award any contract damages. It

argues that:

       [U]nder both Maryland law and general contract law, courts have held that
       in some instances where both parties are at fault (or in default) neither may
       recover. . . . Whether this doctrine is described as failure of consideration,
       failure to satisfy a condition precedent, or mutual breach of contract, it is
       clear that in proper circumstances a court may refuse to allow recovery by
       either party to an agreement because of their mutual fault, which in contract
       terms might be more properly described as mutual default.

(quoting Westinghouse Elec. Corp. v. Garrett Corp., 601 F.2d 155, 158 (4th Cir. 1979)

(citations omitted) (emphasis added)). NCO maintains that Montgomery Park’s failure to

mitigate damages — whether labeled a mutual breach, a failure to satisfy a condition

precedent, or a failure of consideration — bars Montgomery Park from recovering any

damages whatsoever.

       We agree with Montgomery Park’s reading of the lease agreement and its

application of Maryland law. First, the lease agreement itself clearly does not make the

obligation to mitigate damages a condition precedent to recovery for breach of the

agreement. To the contrary, the relevant portion of the lease provides:

       Landlord shall not be liable for, nor shall Tenant’s obligations hereunder
       be diminished by reason of, any failure by Landlord to relet the Premises or
       any failure by Landlord to collect any rent due upon such reletting, but
       Landlord does agree to use reasonable commercial efforts to mitigate
       damages caused by any Event of Default or if Tenant shall surrender the

                                              9
       Premises back to Landlord for such purpose. No action taken by the
       Landlord under the provisions of this section shall operate as a waiver of
       any right which the Landlord would otherwise have against the Tenant for
       the Rent hereby reserved or otherwise, and the Tenant shall at all times
       remain responsible to the Landlord for any loss and/or damage suffered by
       the Landlord by reason of any Event of Default, provided that in no event
       shall Tenant be liable for consequential damages . . . .

(Emphasis added). Far from imposing a condition precedent to Montgomery Park’s

recovery of damages, this provision makes clear that NCO “shall at all times remain

responsible” for any loss suffered due to its breach of the agreement and states further

that “[n]o action taken by [Montgomery Park] under the provisions of this section shall

operate as a waiver of any right [Montgomery Park] would otherwise have against

[NCO].” Moreover, the language of this provision is totally unlike that of the provision

construed in the first appeal, where we concluded that the language imposed a condition

precedent to early termination. The provision in the first appeal imposed conditions to

early termination that were subject to “strict compliance” such that early termination

would be effective “if and only if” the conditions were met. NCO Fin. Sys., 842 F.3d at

822.

       We also agree with Montgomery Park that its lease obligation to “use reasonable

commercial efforts to mitigate damages caused by any Event of Default” must be read as

incorporating the mitigation-of-damages doctrine. This doctrine, which is rooted in the

“avoidable consequences” rule of contract damages, applies only after a breach has

already occurred and functions to decrease a plaintiff’s recovery for that breach. In this

respect, the “duty” to mitigate damages is not one of the mutual duties going to the



                                           10
essence and nature of the contract. As the Maryland Court of Special Appeals has

explained:

       The doctrine of minimization of damages is not a defense to a plaintiff’s
       cause of action, whether that cause of action be one based in negligence or
       contract; rather, it is a “disability on (or a ‘no right’ to) recovery of
       reasonably avoidable damages.” The doctrine serves to reduce the amount
       of damages to which a plaintiff might otherwise have been entitled had he
       or she used all reasonable efforts to minimize the loss he or she sustained as
       a result of a breach of duty by the defendant. . . . Thus, it is clear that the
       doctrine does not place any duty on a plaintiff or create an affirmative right
       in anyone. . . . [I]n order for the doctrine of minimization of damages to
       apply, there must first have been a breach of duty on the part of the
       defendant, who then raises an issue as to the propriety of the losses or
       damages claimed by the plaintiff.

Schlossberg v. Epstein, 534 A.2d 1003, 1006–07 (Md. Ct. Spec. App. 1988) (emphasis

added) (citations omitted).

       NCO’s argument that a mitigation obligation implicates the doctrine of “mutual

breach” is simply off the mark. The central, bargained-for mutual rights and duties of the

lease agreement arose from (1) Montgomery Park’s agreement to provide NCO with

functional commercial office space and (2) NCO’s agreement to timely pay rent for the

space. Accordingly, once NCO failed to pay rent, it was in breach of the contract and

Montgomery Park was entitled to contract damages against it. To the extent Montgomery

Park owed NCO a “duty” to mitigate damages, therefore, the duty arose only after and

because of NCO’s breach and became relevant only when Montgomery Park sought

contract damages from NCO. As such, treating Montgomery Park’s alleged failure to

mitigate damages as a typical breach of contract — and thus as a potential ground for




                                             11
“mutual breach” — fundamentally misconstrues contract law and a landlord’s duty to

mitigate damages resulting from a tenant’s breach.

       The principal case relied on by NCO and the district court, Circuit City, does not

hold to the contrary. Circuit City concerned a landlord that, in order to attract a new

tenant following a prior tenant’s breach of its lease agreement, permitted a commercial

property to be demolished. 829 A.2d at 977. The Maryland Court of Appeals remanded

the case to the trial court for a determination of whether that arrangement was

“reasonable,” instructing that if the lower court were to determine that it was not

reasonable, the court could, “on that basis, conclude that [the landlord] breached its

contractual obligation to mitigate damages and that, from and after the time of that

breach” — i.e., from and after the time the property was demolished and thus could no

longer be re-let — the landlord “was entitled to no further payments.” Id. at 991. In so

holding, the Court of Appeals noted:

       [W]hether seeking to recover rent under property covenants on the theory
       that a surrender has not occurred or to recover contract damages under
       contract law, the landlord has its own obligation to mitigate damages. We
       have recognized generally that, when one party breaches a contract, the
       other party is required by the “avoidable consequences” rule of damages to
       make all reasonable efforts to minimize the loss sustained from the breach
       and can charge the defaulting party only with such damages as, with
       reasonable endeavors and expense and without risk of additional substantial
       loss or injury, he could not prevent.

Id. at 990 (internal quotation marks and citation omitted). Thus, contrary to NCO’s and

the district court’s reading, Circuit City stands for the well-established proposition that a

failure to mitigate damages may decrease the amount of recoverable damages but does

not necessarily preclude recovery of damages altogether. Of course, if the evidence

                                             12
shows that the lessor, with reasonable efforts, could have recovered all of the rent owed

by the lessee, there would be no recovery of unpaid rent. But that conclusion can be

reached only by determining the amount that the lessor could have obtained with

reasonable efforts and then setting off that amount against the rent owed.

       Thus, to apply the mitigation-of-damages doctrine correctly, the district court

should have required NCO to prove how much, if any, additional rent Montgomery Park

could have collected by exercising reasonable commercial efforts to re-let the NCO space

and then decreased Montgomery Park’s contract damages by that amount. Because the

district court did not engage in this analysis, we remand for further proceedings.


                                             III

       Montgomery Park also contends that the district court applied the wrong standard

when evaluating the commercial reasonableness of the efforts to re-let the NCO space,

asserting that the court wrongly “believed the NCO [p]remises must be given preferred

treatment over all other vacant space” in the same building. (Emphasis added). It argues

that, as a result of this error, the district court “ignored” relevant evidence of commercial

reasonableness regarding marketing efforts directed at the building as a whole.

       At trial, the district court applied a reasonableness standard that required

Montgomery Park to show that it favored the NCO space in its marketing efforts, stating

that “Montgomery Park was under a contractual duty to give special care and attention to

NCO” and that although “Montgomery Park . . . engaged in significant effort[s],” “these

efforts were designed only to market Montgomery Park space as a whole, with no serious


                                             13
effort to target or [re-let] NCO space, as they were obligated to do.” Indeed, at times the

court seemed to view the relevant inquiry as what a hypothetical landlord of solely the

NCO premises should have done.         Under this standard, Montgomery Park became

obligated to develop a unique, preferred plan for leasing the NCO space and then to

market that space at the expense of its other vacant spaces, despite the fact that it was

NCO who breached the lease. In the same vein, the court seemed to adopt a standard that

would require the victim of the breach to sacrifice other opportunities to favor the

breaching party — suggesting that Montgomery Park “could have listed the NCO

premises as available and simply made space that had been deemed available for leasing

unavailable.”

       As Montgomery Park rightly points out, however, a landlord’s obligation to

mitigate damages does not require that it favor the vacated space or otherwise drastically

alter its business plan. See Circuit City, 829 A.2d at 990. Rather, Montgomery Park’s

duty to mitigate damages merely required that it act reasonably to re-let the NCO space

under the circumstances, with “the circumstances” including the fact that the NCO space

was but one of a number of vacant spaces that Montgomery Park had available in the

building. As such, the duty to mitigate damages mandated only that Montgomery Park

act reasonably to market the NCO space on an equal footing with its other vacant spaces.

Of course, Montgomery Park was not entitled to sit on its hands and take advantage of

the fact that NCO had a continuing obligation to pay rent, but neither was it required to

single out the NCO space for special treatment to the detriment of its other business

opportunities.

                                            14
       We offer no view on whether Montgomery Park satisfied this standard.

Montgomery Park’s generalized marketing efforts — which the district court recognized

as “significant” — suggest that it may have. But other of Montgomery Park’s actions,

particularly its failure to update its CoStar listing, might suggest otherwise. On remand,

the district court should consider all the relevant evidence, including evidence concerning

Montgomery Park’s generalized marketing efforts, to determine whether Montgomery

Park’s efforts were reasonable and impose on NCO the burden to quantify the

consequence of any failure to mitigate that it is able to prove.


                                             IV

       Finally, Montgomery Park challenges the district court’s admission of certain

expert testimony. Such rulings, however, are entitled to great deference and are subject

to review only for abuse of discretion. See United States v. Fuertes, 805 F.3d 485, 495–

96 (4th Cir. 2015); Noel v. Artson, 641 F.3d 580, 591 (4th Cir. 2011) (“[W]e will only

overturn an evidentiary ruling that is arbitrary and irrational” (internal quotation marks

and citation omitted)). We conclude that the district court did not abuse its discretion.

                                       *      *      *

       For the reasons given, we vacate the district court’s judgment and remand for

further proceedings consistent with this opinion.

                                                           VACATED AND REMANDED




                                             15
