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.
* 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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