Friday, August 30, 2019

BACK TO BELLEVUE


            I wrote about this case in January and February 2018. In December 2017 the Superior Court of Kings County, Washington, entered an Order requiring a vacant tenant (Whole Foods, owned by Amazon) to reopen its closed business and continue operations. The decision was promptly appealed.
 
Commercial real estate attorneys across the county have been patiently watching. Waiting. Anticipating.

            Now it’s decision time.
 
            As background and for those of you who don’t recall . . . Bellevue Square, LLC has 1.3 million square feet of retail space. In 2013 there were three anchors: Nordstrom (266,708 SF), Macy’s (218,371 SF), and JCPenney (200,000 SF).

            Penney’s notified Bellevue that Penney’s would vacate in 2014. Whole Foods was interested in the ground floor space, approximately 34,000 SF.

In 2015 Bellevue Square LLC entered into a 20 year lease with Whole Foods Market, Inc. Whole Foods opened the store in September 2016, and closed the site in October 2017.

Bellevue filed a lawsuit based on an operating covenant requiring Whole Foods to “conduct and carry on” its business of grocery sales “without interruption.” Bellevue’s experts testified that Whole Foods’ vacancy disrupted the stability of the shopping center, affected negotiations with potential and current tenants, reduced customer traffic, prevented Bellevue from recovering percentage rents, and adversely affected Bellevue’s reputation.

Whole Foods conceded that it vacated, but asserted that Bellevue’s appropriate remedy for the breach is damages. Not an injunction or temporary restraining order.

Surprising virtually every real estate attorney in the country, Bellevue prevailed at trial and obtained a preliminary injunction requiring Whole Foods to reopen and continue operating the retail store. Whole Foods appealed, and the Court of Appeals stopped the injunction pending full review.

The Appellate Court determined that injunctions are not warranted if there is a plain, complete, speedy, and adequate remedy at law. And whether or not Bellevue is entitled to an injunction is a function of the Lease and particularly, its remedy provisions.

The Court reviewed the operating covenant in the Lease and determined that Whole Foods was required to continue business operations for the first 10 years of the lease term of between 10 and 13 hours every day. The Court then focused on Bellevue’s contractual remedies in the event of Whole Foods’ default.

The Lease provides that if Whole Foods breaches the Lease by abandoning the site, Bellevue may either terminate the Lease or recover damages for Whole Food’s default. In the latter event, Bellevue has a contractual duty to mitigate damages.

The trial court concluded that these limitations did not prevent ordering Whole Foods to reopen within 14 days and continue business operations. The Court of Appeals disagreed, finding that damages are compensatory and there is no legal justification to force Whole Foods to reopen particularly when Bellevue is required to mitigate its losses.

Those are inconsistent remedies. The Lease gives Bellevue an adequate, complete, and speedy remedy for the harm caused by Whole Foods and Bellevue may continue to recover rent, damages, and other payments from Whole Foods. This case is not appropriate for an injunction compelling Whole Foods to remain open.

Whole Foods wins; Bellevue loses.

See Bellevue Square, LLC v. Whole Foods Market, Inc., Washington Court of Appeals; Division One; Case No. 77770-0-1; December 17, 2018: https://law.justia.com/cases/washington/court-of-appeals-division-i/2018/77770-0.html.  

            Lessons Learned / Questions Asked:

1.      Question: Does your Lease provide for operating covenants, enforceable by the remedy of specific performance? The provision might be ineffective, depending on how the other remedies provisions are worded.

2.      Lesson: Don’t mess with Amazon.

                                                                                                     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



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