Home-Run Jury Verdict in Silicon Valley Commercial Lease Dispute

In December  2024, Quinn Emanuel achieved a resounding victory for new client Anatomage, Inc. against its former landlord, AEW Capital Management, in a contentious commercial lease dispute.

           In 2016, Anatomage rented class-A office space at 303 S. Almaden in downtown San Jose, California.  Anatomage operated there for over a year without complaint.  After AEW acquired the building in 2017, it believed that rents in the downtown San Jose market would skyrocket.  But there was an obstacle: AEW determined that Anatomage was paying below-market rent, and Anatomage’s current lease would entitle Anatomage to low rent through at least 2022.

            In May 2018, AEW’s new property manager started complaining about “noxious odors” emanating from Anatomage’s ground floor suite in the Building, even though no other tenants ever raised a concern.  The landlord retained two independent consultants to investigate, but neither of them were able to conclude that the odor was coming from Anatomage.  Instead of investigating other sources of the odor, the landlord continued to notice inspections of Anatomage’s space in bad faith over the span of several weeks.

            Being unable to substantiate its odor complaints, next, the landlord filed a complaint with the City of San Jose, alleging that Anatomage’s table assembly operations were in violation of the local zoning code.  The city’s inspector initially noted no zoning issues.  But after the landlord pestered the city incessantly, the city issued a zoning violation notice on the basis that Anatomage did not have a “walk-up sales counter.”  The landlord seized on this technicality and issued a “Notice to Cure or Quit” almost immediately—demanding that Anatomage either cease its lawful business or leave the building immediately.

            Following months of harassment from the landlord, and in response to the landlord’s demand, in October 2019, Anatomage surrendered access to its ground floor suite and informed the landlord that it would vacate its two upper-floor suites in six to seven months.  The landlord did not object.

            Then, COVID-19 broke out and the commercial real estate market collapsed.  In July 2020, Anatomage informed the landlord that it would be vacating the remainder of its suites, as planned.  The Landlord suddenly changed its tune, claiming that Anatomage had to stay in the building and pay rent through the end of its lease term in October 2022.

            In October 2020, the landlord sued Anatomage for breach of the lease, seeking rent, common area and maintenance charges, late charges, and interest on the remainder of the lease term.  Forced to litigate, Anatomage filed cross-claims against the landlord for breach of the implied covenant of good faith and fair dealing and constructive eviction.

            When it came time for Santa Clara jurors to weigh the evidence, they found overwhelmingly for Anatomage, not only rejecting the landlord’s claim, but also finding that the landlord had breached the covenant of good faith and fair dealing and constructively evicted Anatomage.  Instead of awarding the $7 million the Landlord demanded at trial, the jury awarded Anatomage $4.4 million in compensatory damages, plus interest, and another $4 million in punitive damages.  The jury’s verdict also entitled Anatomage recover its costs and attorneys’ fees.

            Because Quinn Emanuel was retained to handle this trial just a few months before its start—with discovery long-closed—this win was especially fulfilling.