HBC U.S. Propco Holdings, LLC v. Fed. Realty Inv. Tr.
| Docket Number | 558-2022 |
| Decision Date | 01 September 2023 |
| Parties | HBC U.S. Propco Holdings, LLC v. Federal Realty Investment Trust |
| Court | Court of Special Appeals of Maryland |
Arthur, Ripken, Wilner, Alan M. (Senior Judge, Specially Assigned), JJ. [**]
This case concerns whether a Maryland court erred or abused its discretion in dismissing a lawsuit on the ground that "in the interest of substantial justice" it "should be heard in another forum," outside of the State of Maryland. See Md. Code , § 6-104(a) of the Courts and Judicial Proceedings Article.
The parties to this case are appellant HBC Propco U.S. Holdings LLC ("HBC") and appellee Federal Realty Investment Trust ("FRIT"). HBC is a Delaware limited liability company that has its principal place of business in New York. FRIT is a Maryland real estate investment trust that has its principal place of business in Montgomery County, Maryland.
HBC is the guarantor of a lease of a commercial property in Pennsylvania. The lease is governed by Pennsylvania law. The tenant has defaulted on the lease. FRIT is the landlord.
After FRIT demanded payment from HBC on the guaranty, HBC filed suit in the Circuit Court for Montgomery County, Maryland, seeking a declaration that it has no liability on the guaranty, as well as other relief. Minutes later, FRIT filed suit in the Court of Common Pleas in Montgomery County, Pennsylvania, where the leased property is located, seeking to recover on the guaranty.
On FRIT's motion, the Maryland court dismissed HBC's complaint on the ground that the case should be heard in Pennsylvania. HBC appealed. We affirm.
In 1953, the parties' predecessors-in-interest entered into a commercial lease for a department store located in a shopping center in Bala Cynwyd, Pennsylvania. In 2010, after a series of assignments, FRIT had become the landlord, and Lord &Taylor LLC had become the tenant.
On December 27, 2010, FRIT and Lord &Taylor amended the lease to extend the lease term until 2031. In that lease amendment, FRIT agreed to obtain Lord &Taylor's consent before redeveloping all or a portion of an area that included Lord &Taylor's premises. The parties agreed that the amendment "shall be governed by the laws of the Commonwealth of Pennsylvania."
As an inducement for FRIT to enter into the lease amendment, Lord &Taylor's parent, Lord &Taylor Holdings LLC, agreed to guarantee the performance of the lease obligations, including the payment of the sums to which Lord &Taylor, as tenant under the lease, might be legally liable to the landlord, FRIT. In the guaranty, Lord &Taylor Holdings submitted to personal jurisdiction in Pennsylvania for the enforcement of the guaranty.
At some point, HBC became the successor-in-interest to Lord &Taylor Holdings under the guaranty. In 2019, Lord &Taylor was sold to Le Tote, Inc., which became the tenant under the lease.
HBC alleges that, until March of 2020, Lord &Taylor had performed its obligations under the lease, including the payment of all rent obligations. By the end of March 2020, however, the COVID-19 pandemic had been declared a national emergency. In that same month, the Governor of Pennsylvania ordered all non-essential businesses to close and implemented a stay-at-home directive for numerous counties, including Montgomery County, Pennsylvania, the location of the leased premises. HBC alleges that, as a result of the restrictions, "Lord &Taylor was legally prohibited from operating a retail store" at the leased premises.
On June 25, 2020, FRIT sent Lord &Taylor a notice of default because of its failure to pay amounts due to it under the lease.
In August 2020, Lord &Taylor's store operator, Le Tote, filed a petition for protection from its creditors under Chapter 11 of the United States Bankruptcy Code. The bankruptcy court entered an order authorizing the rejection of the lease on January 31, 2001.[1] FRIT filed claims in Le Tote's bankruptcy case to attempt to recover the amounts that the tenant had failed to pay under the lease, as amended.
On Thursday, May 13, 2021, FRIT, through an attorney in southern New Jersey, sent a notice of demand for payment, by Federal Express, to HBC.[2] The notice demanded payment of $20,931,205.75 due under the guaranty to HBC, for amounts owed through the end of the lease term in 2031. In addition, the notice alerted HBC that FRIT intended to file suit should HBC fail to pay: "If Guarantor fails to immediately pay the Guarantied Obligations in full, Landlord reserves the right to pursue all rights and remedies under the Lease, at law and/or in equity."
At 11:26 a.m. on Friday, June 4, 2021, HBC filed a complaint in the Circuit Court for Montgomery County, Maryland. HBC's complaint includes 12 counts for declaratory and injunctive relief. Counts I though VII seek a declaration that HBC has no obligation under the lease or guaranty to pay amounts demanded by FRIT based on various defenses; Counts IX through XI seek declarations that FRIT is not entitled to payment of amounts due under the lease because the lease was frustrated and became both impossible to perform and commercially impractical because of the Pennsylvania state and local COVID-19 orders; and Count XII requests that FRIT be enjoined from redeveloping the leased premises and the shopping center in which the premises are located and that FRIT be ordered, instead, to continue operating the shopping center "as required under the lease." HBC's complaint acknowledges that Pennsylvania law governs the interpretation of the lease.
On that same morning, 21 minutes after HBC filed its complaint, FRIT filed suit against HBC in the Court of Common Pleas in Montgomery County, Pennsylvania. Asserting claims based on breach of the guaranty, estoppel, and unjust enrichment, FRIT requested judgment in its favor in the amount of $20,931,205.75. The claim for damages included the amount of rent that the tenant had failed to pay through the date when it rejected the lease and the additional amounts that would come due throughout the remainder of the lease term, which runs until 2031.
On July 6, 2021, FRIT moved to dismiss the action filed by HBC in the Circuit Court for Montgomery County, Maryland, on grounds of forum non conveniens. FRIT relied on section 6-104(a) of the Courts and Judicial Proceedings Article. Section 6-104(a) provides as follows:
If a court finds that in the interest of substantial justice an action should be heard in another forum, the court may stay or dismiss the action in whole or in part on any conditions it considers just.
In its motion, FRIT argued that the case did "not belong in Maryland" because the real property at issue was located in Pennsylvania, the lease and other governing documents at issue were governed by Pennsylvania law, most of the material witnesses were in Pennsylvania, and a lawsuit was pending in Pennsylvania involving the same parties, the same facts, the same property, the same issues, and the same law. FRIT also argued that neither the judiciary nor the people of Maryland had an interest in the disposition of a Pennsylvania shopping center and that a Maryland court should not be charged with interpreting and applying Pennsylvania law, including Pennsylvania state and local COVID-19 orders.
In opposing FRIT's motion, HBC was candid about why it filed suit in Maryland and why it did not want the suit to proceed in Pennsylvania: "Maryland," said HBC, "will require FRIT to mitigate its alleged damages, whereas, in Pennsylvania, [FRIT] can argue that it has no such obligation."[3]
On the merits, HBC disputed FRIT's invocation of forum non conveniens. It argued that FRIT is a real estate investment trust formed under the laws of Maryland; that FRIT has its principal place of business in Montgomery County, Maryland; that FRIT owns or operates numerous properties in Maryland; and that FRIT had filed over 100 lawsuits in Maryland state courts, including 89 in the Circuit Court for Montgomery County. HBC also argued that FRIT had made factual assertions that were not supported by affidavit or other documents. And HBC stressed that it had filed first, in Maryland. Citing Johnson v. G.D. Searle &Co., 314 Md. 521, 530 (1989), one of the few cases concerning section 6-104(a), HBC concluded that there were no "weighty reasons" to disturb its choice of forum.
On September 29, 2021, the circuit court heard argument on FRIT's motion to dismiss. On November 18, 2021, the circuit court issued an oral ruling, in which it granted the motion.
In its ruling, the circuit court began by observing that HBC filed this case 21 minutes before FRIT filed its case in Pennsylvania. The court recognized that the two cases arose from the "same transactions," involved "identical legal issues," and were "mirror images" of one another. As a result, said the court, there was "parallel litigation" in Pennsylvania and Maryland.
The court quoted section 6-104(a), which permits it to dismiss an action if, "in the interests of substantial justice," the action should be heard in another forum. It recognized that, under one of the few cases interpreting section 6-104(a),[4] it must balance the "public interest factors of systemic integrity" in addition to "private concerns."
The court accurately described the relevant private concerns which generally involve the convenience of the parties and the witnesses. It also accurately described the "public interest factors,"...
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