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Shopping Centers Today -> November 2002
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LIMITED BRANDS FIGHTS BAN ON STORE CLOSURES
By Jo Ellen Meyers Sharp
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Indianapolis — Limited Brands has appealed a judge’s ruling last spring ordering the retailer to keep four stores at Glendale Shopping Center here open, in a case that is reverberating with landlords and tenants throughout the country.
The retail chain has also sought and received a new judge to hear a case about rent and other disputes it has with the mall’s owner, Indianapolis-based Kite Cos.
Kite sued the Columbus, Ohio-based retailer in April, contending that Limited’s plans to close four shops in the newly renovated mall before their leases expired would cause irreparable harm. Judge Gerald S. Zore of Marion County Superior Court agreed, ordering Limited to keep the stores open until disputes about rent, co-tenancy and who owes what to whom could go to trial.
As expected, Limited took the ruling to the Indiana Court of Appeals, but no date has yet been assigned to hear whether Zore abused his discretion in granting the preliminary injunction, as the retailer claims.
Meanwhile, Marion Superior Court Judge John F. Hanley set trial for Dec. 3. He also said during a hearing in September that Limited could close Express and Bath & Body Works when their leases expire Nov. 30.
The outcome may not significantly affect rulings elsewhere, but the case has prompted lawyers, developers and retailers to examine leases for any loopholes. It has also sparked plenty of discussion within the industry.
Several attorneys said Zore’s ruling is unusual or odd; one called it “scary.”
Other lawyers consider the injunction status quo. Either way, the lawsuit has exacerbated a sometimes tense relationship between developers and retailers.
“The people who ought to be concerned are the tenants,” said Mark J. Levick, a retail and real estate development attorney at Sonnenschein Nath & Rosenthal in New York City. “On the facts and law, the judge is just dead wrong. It’s a scary thing.”
Co-tenancy provisions in the contract between Limited and Glendale call for two anchors, and there was only one, he said.
Limited argues that its stores — Bath & Body Works, Express, a Limited and Victoria’s Secret — are no longer bound by the lease because the mall failed to keep at least two anchors open. (An L.S. Ayres department store stayed open, but a Lazarus department store closed in 1999.)
The center contends that a Lowe’s store and a 12-screen movie theater equal or exceed the lease’s anchor demands. The mall also houses a public library.
“An anchor is not a movie theater, a library or a home improvement store,” Levick countered. What frosts him the most is that three of the leases were considered short-term anyway. The injunction does not require Limited to keep the stores open beyond their lease dates.
“[The judge] went well beyond whatever he needed to do,” Levick said. The stores should have been allowed to close, and the mall owner could have sought damages from Limited, a company that can clearly pay them.
The ruling, attorneys say, could complicate relationships between tenants and landlords, and place the court in the position of policing and enforcement.
“I think this is a wake-up call to a lot of tenants,” said Robert Mouton, a real estate attorney with Locke Liddell & Sapp in New Orleans. The matter expands the notion of economic interdependence, which traditionally has been applied to the relationship between anchors and landlords, he said.
“You always had to look at the repercussions of a tenant going dark and how the shopping center owner would be impacted,” Mouton said. But to get an injunction, “you must show irreparable harm that cannot be compensated by a sum of money.”
Other lawyers note that injunctions have been issued elsewhere. New Jersey, in particular, is considered to be more sympathetic to this expanded economic interdependence theory, said real estate litigation attorney James O’Brien, who practices in Boston and New York City. Injunctions are frequently issued when damages cannot be easily assessed; the commentary that this is unusual or is bucking the trend is just off base, he insisted.
At press time attorneys for both sides were to meet with a court-assigned mediator to try to resolve the case before trial, but no one is optimistic.
Meanwhile, Limited has replaced its local attorney, hiring Karl L. Mulvaney, Phil L. Isenbarger and Nana Quay-Smith from the Bingham McHale law firm, Indianapolis. Douglas Bregman from Bregman, Berbert, Schwartz & Gilday, Bethesda, Md., also is representing Limited, along with Gail Stearn, an attorney and the retailer’s vice president of real estate. Limited’s lawyers declined to comment, while Kite’s lawyers would say only that they are taking depositions.
Lawsuits between shopping center owners and retailers only worsen already difficult relationships, said Theresa W. Williams, director of the Center for Retailing at the Indiana University Kelley School of Business. Even in the late 1990s, when business was good and there was a lot of development going on, relationships could be testy, she said. Now, she notes, “business has really been tough for retailers the last two years, and they are not willing to let their stores and brands sit in bad locations, and they will break leases.”
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