J.C. Nichols Co. v. Eddie Bauer, Inc.

• Decision Date: 28 April 1998
• Docket Number: No. 98-0370-CV-W-6.,98-0370-CV-W-6.
• Citation: 4 F.Supp.2d 875
• Parties: J.C. NICHOLS COMPANY, Plaintiff, v. EDDIE BAUER, INC., Defendant.
• Court: U.S. District Court — Western District of Missouri

4 F.Supp.2d 875

J.C. NICHOLS COMPANY, Plaintiff, v. EDDIE BAUER, INC., Defendant.

No. 98-0370-CV-W-6.

United States District Court, W.D. Missouri, Western Division.

April 28, 1998.

Daniel M. Dibble, Amy Beth Marcus, Timothy K. McNamara, Lathrop & Gage, L.C., Kansas City, MO, for Plaintiff.

Leland H. Corley, Elizabeth D. Nay, Lewis, Rice & Fingersh, Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

SACHS, District Judge.

Plaintiff J.C. Nichols filed suit on April 1, 1998, to enforce a lease restriction. Pending litigation it seeks a preliminary injunction. Defendant Eddie Bauer has moved the court to stay or to dismiss Nichols' action based on Bauer's earlier-filed declaratory judgment suit in Kansas state court involving identical issues. After oral argument I denied Bauer's motion and proceeded to hear testimony and argument on the Nichols motion.

Nichols, a real estate owner and developer, and Bauer, a retailer, are parties to a 1992 lease agreement. The lease provided for Bauer to lease property on Nichols' Country Club Plaza, an upscale shopping area in Kansas City, Missouri, for the purpose of operating an Eddie Bauer Premier Store on the premises. The lease agreement contained a restrictive covenant which provides:

Tenant further agrees that these Premises shall house the only "Eddie Bauer Premier Store" in the greater Kansas City metropolitan area which is defined as the five (5) county SMSA trade area of Jackson, Clay, Johnson, Platte and Wyandotte counties throughout the Primary Term and any Extension Terms of this Lease; and Tenant further agrees not to open any new "Eddie Bauer" stores of any kind anywhere in the metropolitan area except the 6-7,000 square foot store scheduled to open locally at Oak Park Mall in the fall of 1992, which may be renewed but the premises therein shall not be expanded.

The legality of the restriction has been in question for over four years. Bauer sought to renegotiate the restriction, but Nichols has been insistent on full protection of its contract rights. Despite the covenant, Bauer proceeded to construct a store in the Independence Center shopping area in Missouri and to enlarge the Oak Park Mall store in Johnson County, Kansas. Both stores are reportedly ready to open.

In evaluating a request for a preliminary injunction, the court considers (1) the probability of success on the merits, (2) the threat of irreparable harm to the moving party, (3) the balance between the potential harm and any injury that an injunction would cause to other interested parties, and (4) whether the public interest supports the issuance of an injunction. Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 112 (8th Cir.1981) (en banc). No single factor is dispositive and all must be balanced to determine whether to grant the injunction. Int'l Ass'n of Machinists and Aerospace Workers, AFL-CIO v. Schimmel, 128 F.3d 689, 692 (8th Cir.1997).

Nichols contends that, if a preliminary injunction is not granted, it will lose rentals on the Plaza. The rent Bauer pays Nichols is in part a function of Bauer's gross sales. Accordingly, if sales decrease as a result of increased competition from other Bauer stores, Nichols will suffer harm indirectly, although the direct sufferer will be Bauer itself, as operator of the Plaza store. Nichols also claims it will be harmed by the loss of business to its other tenants if Bauer is allowed to open competing stores and that its reputation would suffer as a result of the loss of exclusivity. According to Nichols, the Bauer Premier Store draws a substantial number of customers to the Plaza and has contributed to the Plaza's uniqueness in the Kansas City metropolitan area.

The hardship issue can best be examined as it relates to each proposed store.

Based on the testimony last week I conclude that the Independence Center store, as proposed, is likely to cause no appreciable hardship to Nichols — perhaps less than the Olathe outlet or discount store, a facility already opened in violation of the lease, which was not objected to by Nichols. The proposed store in Independence is a standard sportswear store, the type of relatively modest store used by Bauer until its recent, more ambitious projects.¹ It is some 16 miles from the Plaza and unlikely to divert potential Plaza customers, even those who may be interested in shopping at the large "Premier" store operated by Bauer in a prime location at the Plaza. The merchandise in the Premier store is far more diverse than in the standard store, and architecturally the Plaza store is described as luxurious.

Bauer's experience in Albuquerque, where similar competition between a Premier and a standard store has been initiated, caused minimal loss of customers at the Premier store, and thus hardly measurable loss of rentals to the landlord under a percentage of gross receipts lease. Nothing at the Independence Center store would materially reduce the prestige of the Plaza store or of the Plaza itself. Whatever concern Nichols may have about the future of Independence Center as a competitor of the Plaza, that would not realistically relate to a new Bauer store there.

A new Bauer store would be beneficial to the Plaza store in minor ways, such as making prospective customers familiar with the Bauer name and stimulating advertising.

The new store's capital and inventory cost (exceeding $700,000) is not a pertinent factor, because those expenses were incurred with knowledge of the Nichols objection and the possibility of litigation. Bauer took its chances. Keeping the store closed would, however, deprive Bauer of anticipated profits of perhaps $100,000 annually while Nichols would gain nothing material. The balance of hardships comparison overwhelmingly favors Bauer.

Bauer would also be harmed far more than Nichols would be helped by the closing of the Oak Park Mall store pending litigation. Disregarding capital expenditures and the cost of inventory ($2.9 million), I do consider the lost profit estimates of $1.2 million annually if the doors remain closed. According to the current testimony there would be a likely loss to Nichols of only about $45,000 per year in rentals if the Kansas store opens. That ratio exceeds 25 to 1. If Nichols ultimately prevails in obtaining a permanent injunction, it could likely obtain lost rentals from breach of contract at a rate of some $45,000 per year.² It would also ultimately achieve a store closing that would surely destroy any advantage temporarily obtained at the Oak Park Mall by the short-term operation of a Bauer store. At this stage, therefore, it would be very difficult to conclude that operation during litigation would result in significant irreparable harm to Nichols. The immediate balance of hardships, moreover, again strongly favors Bauer.³

The public interest issue is undeveloped, but somewhat favors Bauer because it will offer new employment opportunities, and the public would have the convenience of a Bauer store in Kansas and Independence. Nichols argues that enforcement of its contract rights would be a significant factor favoring an injunction pending litigation. It contends that "sending a message" to the business community is important. This assumes, however, that its contract right is a lawful one. I am not persuaded to reach that conclusion today, and I have a judicial duty not to jump to such a final conclusion. There has been no adequate development of the facts, and the pertinent law is both novel and elusive.⁴

I have speculated that there could be argument from Nichols that I should equate the public interest with opposition to centrifugal forces in the community, which foster urban sprawl and (as I suggested) the Balkanization or ghettoization of the metropolitan population. Civic-minded persons may suppose that to be the major potential public impact of a final ruling for Bauer, which might be used as a precedent. I doubt that the judicial role encompasses urban planning, even if I should personally regret the trend toward far-flung shopping centers.⁵

If Nichols were sure to win this lawsuit there might be an overriding concern for prompt contract enforcement. I believe, however, that Nichols is quite likely to lose its challenge to the Independence Center store. The Oak Park Mall challenge is more likely to succeed, but for reasons discussed below my tentative view (which must remain tentative until after the case is ready for trial) is that Nichols can hardly claim a 50/50 chance of prevailing. That is considerably less than would mandate a quick interim injunction.

The parties have debated with some intensity whether the restriction, if otherwise sound, is geographically overbroad, in that it covers five counties comprising most of the metropolitan area.⁶ Bauer claims a radius of a few miles would mark the limits of a reasonable competitive restriction to protect shopping centers. That may be true of small or medium-sized shopping centers.⁷ The Plaza is, however, considered to be one of the ten most attractive and distinctive shopping centers in the country. Bauer concedes there is nothing comparable within the four nearest States. The Plaza draws about 40% of its customers from outside the metropolitan area. If it is entitled to protect a territory of prospective customers I believe a five county area is not an excessive request. Noncompete clauses on the sale of a business have been sustained under Missouri law for comparable areas and more. Gold v. Holiday Rent-A-Car Int'l, Inc., 627 F.Supp. 280, 282 (W.D.Mo.1985) (75-mile radius restriction reasonably limited as to area); Schnucks Twenty-Five, Inc. v. Bettendorf, 595 S.W.2d 279, 286 (Mo.Ct.App.1979) (10 year 200-mile radius restriction held to be reasonable because it was not larger than reasonably necessary to protect the promisee). Bauer cites no authority for challenging the five county restriction in comparable circumstances.⁸

In this case I need not deal with areas...