Brentwood Investors v. Wal-Mart Stores, Inc.
| Decision Date | 01 June 1998 |
| Docket Number | C-95-0856 (EHC). |
| Court | U.S. District Court — Northern District of California |
| Parties | BRENTWOOD INVESTORS, a California general partnership; and BRENTWOOD HOLDING COMPANY, a California general partnership, Plaintiff, v. WAL-MART STORES, INC., a Delaware corporation, Defendant. |
This case involves a 1985 sale-leaseback transaction ("Transaction") of multiple store sites between Defendant Wal-Mart Stores, Inc., a Delaware corporation with its principal place of business in Arkansas, and Plaintiffs Brentwood Investors and Brentwood Holding Company, both California general partnerships having their principal places of business in San Francisco, California. Wal-Mart Properties, Inc., was also involved in the Transaction although it is not named a party.
Plaintiffs were granted leave to file a second amended complaint. A motion for leave to file a third amended complaint was denied. Pending are Defendant's motion for summary judgment and Plaintiffs' motion for leave to file a fourth amended complaint which was filed while its motion for leave to file a third amended complaint was pending.
On August 14, 1985, Brentwood Holding Company, Wal-Mart Properties, and Wal-Mart Stores executed an "Agreement of Purchase and Sale" (hereafter "Purchase Agreement"). (Ex. C to Comstock Declaration in Support of Motion for Summary Judgment, hereafter "Comstock Declaration"). Pursuant to the Purchase Agreement, Wal-Mart Properties agreed to sell thirteen parcels of land on which it had or intended to build a Wal-Mart store to Brentwood Holding Company.1 The stated purpose of the Purchase Agreement was to "provide for the purchase and sale of each Property by [Wal-Mart Properties] to [Brentwood Holding Company], and thereafter for the lease of each Property by [Brentwood Holding Company] to [Wal-Mart Stores, Inc.]." Id.
The Purchase Agreement provided for separate closing dates for each of the properties. Ex. C at ¶ 3.03 to Comstock Declaration. The Purchase Agreement further provided that Wal-Mart Stores, Inc., would execute and deliver a lease to Brentwood Holding Company in a form attached to the Purchase Agreement twenty days before the closing on a property. Ex. C at ¶ 4.04 to Comstock Declaration. The properties to be purchased were identified in Exhibit A to the Purchase Agreement. Wal-Mart Properties retained the right of substitution of properties prior to October 31, 1986 or at any time thereafter if Brentwood Holding Company objected to the condition of title of a property. Exhibit A to the Agreement also set forth the purchase price for each property. The Purchase Agreement contemplated closing on each of the properties no later than January 31, 1987.
The Purchase Agreement set forth conditions precedent to closing on each of the properties. These conditions were designated covenants, unless otherwise expressly provided, for the benefit of Brentwood Holding Company which could be waived by Brentwood Holding Company. Ex. C at ¶ 4.01 to Comstock Declaration.
Paragraph 4.04 provided:
On or prior to each closing, Tenant [Wal-Mart Stores] shall furnish Buyer with a Lease executed by Tenant naming Buyer as landlord and Tenant as tenant (the "Lease"), and Buyer shall execute the Lease and deliver three (3) duplicate originals to Title Agent twenty (20) days prior to closing and Title Agent shall return two duplicate originals to Tenant. The Lease shall be in the form attached hereto as Exhibit B with the blanks therein filled in as is appropriate for each individual Property. The minimum rent shall be 10.15% of the purchase price of the Property. The percentage rent shall be 1% over the fourth full fiscal year base. The purchase price in Section 11(b) shall be the same as the cost which Buyer incurred for the Property.
Ex. C to Comstock Declaration (emphasis added).2
Paragraph 6.07 provided:
This Agreement contains the entire agreement of the parties hereto concerning the subject matter hereof, and supersedes any prior written or oral agreements between them concerning the subject matter contained herein. There are no representations, agreements, arrangements or understandings, oral or written, relating to the subject matter, which are not fully expressed herein.
Ex. C to Comstock Declaration(emphasis added).
Paragraph 6.04 provided that:
This Agreement shall be governed by Arkansas law, except to the extent the law of the state where each Property is located must govern.
Ex. C to Comstock Declaration.
Plaintiffs allege that Brentwood Holding Company signed the Purchase Agreement before Wal-Mart Properties had identified the particular store sites to be purchased. Plaintiffs further allege that they were not involved in the selection development, or management of the store sites. Plaintiffs do not allege when they first learned the sites selected by Wal-Mart Properties. There is no dispute that Plaintiffs were provided with a form of the proposed lease before signing the Purchase Agreement. However, Plaintiffs aver that they were not represented by counsel when the Purchase Agreement was executed and that they only retained counsel prior to the closings on the properties. Declaration of John Benetti in Opposition to Defendant's Motion for Summary Judgment, hereafter "Benetti Declaration" and the Declaration of David G. Finkelstein, Esq., hereafter "Finkelstein Declaration."
Plaintiffs also allege that Wal-Mart made representations regarding the income stream they would earn from investing in the transaction and that Wal-Mart actively solicited investment by them based on two "material financial" representations: (1) that Plaintiffs would receive 10.15% return on investment (without an escalation provision) and (2) Plaintiffs would be protected against inflation by the percentage rent clauses in each of the leases which were to become effective in the fifth year of the leases. Plaintiffs do not allege that these representations were included in the Purchase Agreement or subsequent agreements.
Plaintiff Brentwood Investors, a California general partnership of which Brentwood Holding is the managing general partner, subsequently executed leases, in the form attached to the Purchase Agreement of four properties for a term of twenty-five years each. Ex. D to Comstock Declaration. Those properties are located in Daphne (or Lake Forest), Alabama; El Paso, Texas; Hattiesburg, Mississippi; and Ft. Dodge, Iowa.
Each of the leases required the annual payment of fixed minimum rent of 10.15% of the purchase price of the properties. In addition, the leases required the annual payment of percentage rent equal to one percent of gross sales beginning in the fifth year of the lease (provided that the gross sales in the fifth year exceeded the fourth year's gross sales). Ex. D at 4(b) to Comstock Declaration. The leases further provided that:
Except as otherwise expressly provided herein, this Lease shall not terminate; nor shall Tenant have any right to terminate this Lease or be entitled to the abatement of any rent or any reduction thereof, nor shall the obligations hereunder of Tenant be otherwise affected, by reason of any damage to or destruction of all or any part of the demised premises from whatever cause, the taking of the demised premises from whatever cause, the taking of the demised premises or any portion thereof by condemnation of otherwise, the prohibition, limitation or restriction of Tenant's use of the demised premises, or interference with such use by any private person or corporation, or by reason of any eviction by paramount title or otherwise, or Tenant's acquisition of ownership of the demised premises otherwise than pursuant to an express provision of this Lease, or for any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding, it being the intention of the parties hereto that the fixed minimum rent, percentage rent, and all other rents and charges payable hereunder to or on behalf of Landlord, shall continue to be payable in all events and the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall be terminated pursuant to an express provision of this Lease.
* * * * * *
Tenant waives all rights now or hereafter conferred by law (i) to quit, terminate or surrender this Lease or the demised premises or any part thereof, or (ii) to any abatement, suspension, deferment or reduction of the fixed minimum rent, percentage rent or any other sums payable hereunder to or on behalf of Landlord, regardless of whether such rights shall arise from any present or future constitution, statute or rule of law.
Ex. D to Comstock Declaration (emphasis added). Furthermore, Wal-Mart Stores as Tenant retained exclusive control of the premises with the right to assign or sublet the premises. Ex. D at ¶ 14 to Comstock Declaration. With respect to subletting, the leases provided that:
In the event that Tenant sublets the entire demised premises and receives from such subtenant a total rent in excess of that payable by Tenant to Landlord pursuant to Section 4 hereof, Tenant shall pay to Landlord annually at the times specified in section 4(b) hereof one-half (1/2) of the excess, if any, between the rent paid to Tenant by such subtenant and the rent payable by Tenant to Landlord pursuant to Section 4 hereof with respect to the immediately preceding fiscal year of Tenant.
Ex. D at ¶ 14 to Comstock Declaration.
Paragraph 18 stated the remedies for default by the Tenant, including:
. . . Landlord may, so long as such default continues, either (i) terminate this Lease by written notice to Tenant, which written notice shall specify a date for such termination at least fifteen (15) days after the date of such notice or (ii) not terminate this Lease and exercise any of its rights under Section...
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