Details
so far are sketchy, but here is what I have learned.
Recently
Starbucks announced that it was closing all 379 Teavana locations by the end of
2017. Simon Property Group – the nation’s largest shopping center owner /
manager, was displeased.
Simon’s
concern, besides the obvious loss of income, is the secondary effect that store
closings have on other retailers who may also be struggling. Retailers in
vibrant, energetic, busy shopping centers enjoy better revenues than vendors in
malls with vacancies.
Happy
customers yield happy retailers. Happy retailers yield happy mall owners and
operators, which increase shopping center values proportionately.
Simon asserted litigation in
Indianapolis against Teavana, to prevent the coffee company’s store closing. Simon
claimed that Starbucks (Teavana’s parent) was not financially stressed, unlike
other retailers who had departed before the lease term had officially ended. Simon
concluded that Teavana could well afford to continue operating the 77 Teavana
stores in malls owned or operated by Simon.
Starbucks offered testimony that it
would cost Starbucks approximately $15 million to continue to operate 77
Teavana stores over a five-month period. And that Simon had adequately
protected itself with lease covenants, requiring Starbucks to compensate Simon
for its losses should Teavana close its stores.
Simon requested a temporary
restraining order and injunction, to
force Teavana to continue in operations. The court agreed, forcing Teavana
to remain open – at least until the next hearing.
Understand
this is a radical shift in legal thinking and judicial reasoning. TROs and
injunctions are typically issued to show that the plaintiff will be irreparably
harmed if the status quo isn’t frozen. And that a money award would not
adequately compensate the plaintiff for its damages.
Courts
are reluctant to issue TROs and injunctions that require continuous oversight.
Judicial resources are scarce and it is impractical for courts to oversee a
business. Judges, magistrates and other court functionaries do not have the
time, nor the expertise, nor the bandwidth to inspect shopping centers and its
tenants, or to receive these arguments at the next hearing:
Simon: Your Honor, Teavana is not
following your instructions. Yes it’s true that they are open the required
hours and days, but there’s only one employee inside. Not only could s/he not
work the cash register, but s/he could not properly make my holiday skinny flat
white with cinnamon, nutmeg and a hint of ginger.
Teavana: Untrue. Our second employee was
on break at the time, and although our barista-employee may have struggled with
an unusual seasonal beverage, s/he was and remains capable of making CocoCaramel
Sea Salt Tea and Caramel Chai, our best sellers.
Simon:
We have photos.
Teavana: We brought lattes.
And
on it goes when courts are involved in forcing businesses to stay open. Or
forcing anyone to do, well, anything. Anything short of sign here. Attend this
class within 120 days. Present yourself to the title agent (or jail, prison or
penitentiary) tomorrow at 10 a.m.
Pay
$84,392 plus court costs. Remove yourself from the building within five days.
Those
orders are innately different than directing a business to continually operate.
At what standard – what inventory – how many employees – what days and hours –
what price points – what level of continuing marketing and advertising – what
level of continuing employee training – which menus – using which suppliers - and
all the minute daily decisions every business owner and manager makes every
day.
Now
to the legal component. Experts believed that parties to a contract (landlords
and tenants, buyers and sellers, etc.) had the right to breach the contract and
walk away. And that is why lawyers spend so much time drafting and negotiating
default, notice and opportunity to cure defaults, and remedy provisions in
contracts.
And
particularly, “go dark” clauses in
commercial leases.
It
seems that this court may not be willing to allow the tenant to breach its
contract and bail. Instead, if this court doesn’t reverse its course at the
next hearing, Teavana may be required to remain open for business. Failure of
Teavana to do so might result in contempt orders.
I’ll report back when I have more
intel. But at this moment, all commercial tenants have cause to be nervous.
Stuart A. Lautin, Esq.*
* Board Certified,
Commercial (1989) and Residential (1988) Real Estate Law,
Texas
Board of Legal Specialization
Licensed
in the States of Texas and New York
Reprinted with
the permission of North Texas Association of Realtors®, Inc.
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