Eastern Shore Markets v. J.D. Assoc., 99-1554

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation213 F.3d 175
Docket NumberCA-98-2994-S,No. 99-1554,99-1554
Decision Date01 March 2000

Appeal from the United States District Court for the District of Maryland, at Baltimore.

Frederic N. Smalkin, District Judge.

COUNSEL ARGUED: John E. McCann, Jr., MILES & STOCK-BRIDGE, P.C., Baltimore, Maryland, for Appellant. William Alden McDaniel, Jr., MCDANIEL & MARSH, Baltimore, Maryland, for Appellees J.D. Associates, et al.; Kathleen L. Beggs, WILLIAMS & CONNOLLY, Washington, D.C., for Appellee G.H. Cambridge. ON BRIEF: Timothy L. Mullin, Jr., MILES & STOCK-BRIDGE, P.C., Baltimore, Maryland, for Appellant. Jo Bennett Marsh, MCDANIEL & MARSH, Baltimore, Maryland for Appellees J.D. Associates, et al.; Charles T. Kimmett, WILLIAMS & CONNOLLY, Washington, D.C., for Appellee G.H. Cambridge.

Before WILKINS, NIEMEYER, and KING, Circuit Judges.

Affirmed in part and vacated in part by published opinion. Judge Niemeyer wrote the opinion, in which Judge Wilkins and Judge King joined.


NIEMEYER, Circuit Judge:

Eastern Shore Markets, Inc. sued its shopping center landlord under Maryland law for (1) breach of an express covenant not to interfere with Eastern Shore's reasonable access to its grocery store premises, (2) breach of an implied covenant to refrain from destructive competition, which allegedly was committed when the landlord introduced a competing grocery store into the shopping center, and (3) related torts. The district court dismissed Eastern Shore's complaint under Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, we affirm the district court's dismissal of the claim for breach of an express covenant, vacate its dismissal of the remaining claims of the complaint, and remand for further proceedings.


Eastern Shore Markets, Inc. ("Eastern Shore"), a Virginia corporation, operates a 28,569-square-foot grocery store in the Dorchester Square Shopping Center in Cambridge, Maryland, on premises leased from J.D. Associates Limited Partnership, formerly known as Dorchester Center Limited Partnership ("J.D. Associates"). The Dorchester Square Shopping Center, a strip mall, was constructed in 1987. The "anchor" at one end of the mall was "James Way" department store; the anchor at the other end was designated for a "future department store." Eastern Shore's grocery store and a smaller drug store were located between the anchors, along with other smaller retail stores. Under the lease between Eastern Shore and J.D. Associates, which provides for an initial term of 20 years, Eastern Shore agreed to pay a base rent plus a "percentage rent" of 1.25% of the store's annual gross sales in excess of $10 million.

Although the lease between Eastern Shore and J.D. Associates does not explicitly give Eastern Shore an exclusive right to be the only grocery store in the shopping center, the lease does incorporate a site plan that was "approved by the parties." This site plan outlines and labels the premises of each facility in the center, designating the larger spaces for the James Way department store (61,420 square feet); a "future department store" (30,000 square feet); Eastern Shore's grocery store (28,569 square feet); and a similarly sized area designated "future retail." The lease also provides that Eastern Shore operate only a "[s]upermarket primarily for sale of food" in the mall and that, if it were to operate another grocery store within a three-mile radius of the mall, it would have to include that store's gross sales "in the computation of the percentage rent" payable to J.D. Associates under the lease.

The lease gives J.D. Associates wide discretion in the management of the common areas, including parking spaces, which are placed under its "exclusive control and management." The lease provides expressly that J.D. Associates is authorized to

change the area, level, location and arrangement of the parking areas . . . reduce some by erecting buildings or improvements . . . to close temporarily all or any portion of the parking areas . . . and perform such other acts in and to said areas . . . as, in the use of good business judgment, Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by Tenants .. . and [their] customers.

The lease gives Eastern Shore a revocable license to use the common areas, but the license provides that the common areas may be "diminished" without consequence, "provided reasonable access remains for Tenant, its employees and customers."

The disputes giving rise to Eastern Shore's complaint in this action arose from (1) the construction of a Wal-Mart store in 1995-96 after James Way went out of business and J.D. Associates conveyed the "James Way" property to Wal-Mart and (2) the competition created by J.D. Associates' sale of the "future department store" site to a developer who constructed a 52,000 square-foot Metro Food Store, which opened in September 1996. As a consequence of these actions, on August 31, 1998, Eastern Shore commenced this action based on diversity jurisdiction against J.D. Associates, its affiliates,1 and G.H. Cambridge, LLC, the entity to which J.D. Associates and its affiliates transferred the "future department store" property for the construction of the Metro Food Store.

Eastern Shore's complaint alleges that during the construction of the Wal-Mart store on the "James Way" property, the east entrance of the shopping center was blocked, requiring Eastern Shore's customers who approached the shopping center on U.S. Route 50 from the east to proceed past the shopping center almost two miles, turn around, and drive back to an entrance accessible only from the eastbound side of U.S. Route 50. Similarly, Eastern Shore alleges that the construction of the Metro Food Store on the "future department store" site resulted in construction trailers and other vehicles being parked directly in front of Eastern Shore's store, obstructing views of the store and denying its customers reasonable access to the store. The complaint also alleges that the parking lot in front of Eastern Shore's store was relined and reconfigured so that the parking spaces "faced" Metro Food Store. In addition, as part of the parking reconfiguration, a concrete island was constructed across the front of Eastern Shore's store. The complaint alleges that these interferences with the common areas breached the explicit terms of the lease by denying Eastern Shore's customers "reasonable access" to the store and by benefiting Metro Food Store at Eastern Shore's expense.

Eastern Shore's complaint also alleges that, by allowing the construction of a Metro Food Store in competition with Eastern Shore's grocery store, J.D. Associates violated "an implied duty of good faith and fair dealing." It alleges that the defendants constructed a modern, warehouse-style Metro Food Store in excess of 52,000 square feet that "dwarfed" Eastern Shore's much smaller store, introducing destructive competition.

The complaint alleges that the effect of the interference with parking and reasonable access and the competitive activity from Metro Food Store was "devastating," causing the monthly sales at Eastern Shore's store to "plummet[ ] approximately 30%, thereby threatening the Store's economic viability." Eastern Shore demands $8 million in damages.

In addition to the breach-of-lease claims, the complaint alleges that the affiliates of J.D. Associates and G.H. Cambridge conspired to induce, and indeed induced, J.D. Associates to breach its express and implied obligations under Eastern Shore's lease and that those parties are liable for tortious interference with contract, tortious interference with business relations, and civil conspiracy.

The defendants filed two separate motions to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), or in the alternative, relying on submitted affidavits, for summary judgment. The district court refused to rely on the submitted affidavits and dismissed the complaint under Rule 12(b)(6). The court concluded that "Maryland law does not imply a covenant in retail development leases that the developer will not lease space to a competitor of the lessee, even where the rent is partially dependent upon gross sales of the lessee." The court also concluded that under the lease, Eastern Shore could not complain that the reconfiguration of the parking lot during the construction of the Metro Food Store favored Metro Food. It noted that "[t]here is no dispute that customers still could get to and park near [Eastern Shore's grocery store] in a reasonable fashion." Finally, the court dismissed Eastern Shore's complaint arising out of the WalMart construction as time-barred, either by operation of the relevant three-year statute of limitations or by laches.

This appeal followed.


In reviewing a district court's order dismissing a complaint under Federal Rule of Civil Procedure 12(b)(6) for plaintiff's "failure to state a claim upon which relief can be granted," we determine de novo whether the complaint, under the facts alleged and under any facts that could be proved in support of the complaint, is legally sufficient. See Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991); see also Fed. R. Civ. P. 8(a)(2) (establishing as a pleading requirement that a claim contain "a short and plain statement of the claim showing that the pleader is entitled to relief"). Because only the legal sufficiency of the complaint, and not the facts in support of it, are tested under a Rule 12(b)(6) motion, we assume the truth of all facts...

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