K-Mart Corp. v. Oriental Plaza, Inc.

• Decision Date: 02 March 1989
• Docket Number: No. 88-1984,K-MART,88-1984
• Citation: 875 F.2d 907
• Parties: CORPORATION, Plaintiff, Appellee, v. ORIENTAL PLAZA, INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 907

875 F.2d 907

K-MART CORPORATION, Plaintiff, Appellee, v. ORIENTAL PLAZA, INC., Defendant, Appellant.

No. 88-1984.

United States Court of Appeals,

First Circuit.

Heard March 2, 1989.

Decided May 10, 1989.

Walter H. Muniz with whom Gerardo A. Carlo, Carlo & Dubos, Old San Juan, P.R., Eldia M. Diaz Olmo and Rodriguez-Ramon, Pena & Diaz, Hato Rey, P.R., were on brief, for defendant, appellant.

Jorge I. Peirats with whom Edward M. Borges and O'Neill & Borges, Hato Rey, P.R., were on brief, for plaintiff, appellee.

Before TORRUELLA and SELYA, Circuit Judges, and CAFFREY, ^* Senior District Judge.

SELYA, Circuit Judge.

Concerned that its landlord's word was somewhat shy of its bond, plaintiff-appellee K-Mart Corporation (K-Mart), ¹ a tenant at the Oriental Plaza Shopping Center (the Center) in Humacao, Puerto Rico, brought suit in federal district court against the Center's owner, defendant-appellee Oriental Plaza, Inc. (OPI). K-Mart asserted that OPI had perpetrated a breach of the lease agreement (the Lease) between the two corporations. At the bottom line, the question presented on appeal is whether the court below erred in ordering mandatory injunctive relief in plaintiff's favor. Seeing nothing amiss, we affirm.

I. SITE PREPARATION

The parties entered into the Lease on September 21, 1983. During the negotiations, both sides were concerned with possible future construction of retail space in areas of the Center reserved for parking. The Lease resolved these concerns by the inclusion of two key covenants: OPI would build no more than 10,000 sq. ft. of retail space in the parking area north of K-Mart's store (i.e., between its premises and the neighboring Pueblo Supermarket), and any such new construction would not deviate from an agreed site plan (Exhibit B of the Lease) without K-Mart's express written consent. The Lease provided in pertinent part that:

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8. Parking and Other Common Areas

8.1 ... The layout of ... the Common Area, as depicted on Exhibit B shall not be changed without Tenant's consent.

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9. Landlord's Representations and Warranties

9.1 ... Landlord further covenants that it will not erect hereafter any buildings or other structures [in the Center] except as shown on Exhibit B....

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42. Entire Agreement

This lease contains the entire agreement between the parties and cannot be changed, modified or amended unless such change, modification or amendment is in writing and executed by the party against which the enforcement of the change, modification or amendment is sought.

In February 1986, OPI wrote to K-Mart's real estate department in Troy, Michigan seeking approval of a contemplated development of retail space in the parking area. The plan was at variance with the Lease and the landlord requested "a letter from K-Mart acknowledging the acceptance of these facilities." K-Mart wrote back, refusing to acquiesce. In April, OPI tried again. It submitted a second revised site plan to K-Mart, which differed from the Lease's requirements only in relatively minor respects (e.g., the addition of an entrance at the northern boundary of the Center, re-siting of the proposed new construction to an area further from K-Mart's store). K-Mart sent OPI a letter approving this plan. But, the government, through the Planning Board, turned thumbs down and the design was never implemented.

In December 1986, Oriental sent yet a fourth site plan to K-Mart. The layout involved something entirely new--a proposed 1,200 sq. ft. structure labelled "Bank," circled in red by the landlord and depicted in the Center's northwest corner. The sketch also showed three other retail buildings which were nonconforming in two respects: they were located closer to K-Mart's store, and aggregated more square footage, than permitted by the Lease. The cover letter accompanying the proffer directed K-Mart's attention exclusively to the proposed bank building and parking layout, noting that "[v]isibility is the same with exposure unaffected from all sides." No mention was made of the retail buildings shown on the site plan. Plaintiff wrote OPI that the plan had been forwarded to its in-house design division. At the same time, plaintiff forewarned that approval of the bank location would be contingent upon its receipt of 50% of the rental receipts from that development. The correspondence did not mention the other retail space depicted on the drawing. No agreement was reached anent rental receipts and the bank was never constructed.

On March 20, 1988, without seeking or receiving K-Mart's blessing, construction got underway on three retail buildings in the parking area. Although not apparent at the time, these structures turned out to be similar to the ones depicted on the December 1986 site plan. The combined square footage (10,800 sq. ft.) exceeded the maximum allowed under the Lease (10,000 sq. ft.). Moreover, the project deviated from Exhibit B (and from the site plan which plaintiff had approved in April 1986) in another respect; the new buildings extended southerly to a point substantially closer to K-Mart's store than was allowable under the Lease and shrunk the available parking. The two structures located furthest from K-Mart's premises were to be owned by third parties, Caribbean Restaurants, Inc. (Carib) and South American Restaurants Corp. (SARC), under land-lease agreements; Carib and SARC each desired to operate a fast-food restaurant on the site. OPI erected the third building on speculation, that is, in the expectation of securing a suitable tenant.

It was not until some eleven weeks had elapsed that K-Mart, on June 13, objected to the development as inconsistent both with the Lease and the April 1986 site plan. At this point, the two northernmost structures (the restaurants) were at least 80% complete and the southernmost structure was approximately 42% complete. OPI refused to halt the construction and K-Mart, invoking diversity jurisdiction, initiated this suit.

II. LAYING THE FOUNDATION

K-Mart's verified complaint and motion for preliminary injunction were docketed on June 22, 1988. The complaint asserted that the development violated the Lease and harmed plaintiff in that parking near its store would be reduced; traffic congestion would be increased; plaintiff's store and signage would be obstructed; and in the bargain, the chances of impulse shopping were lessened. The complaint requested variegated relief, equitable and legal. OPI, fighting fire with fire, responded by moving to dismiss the action for failure to join indispensable parties, viz., Carib and SARC. The district court refused to grant the motion, instead scheduling a prompt hearing on preliminary injunction. The hearing began on July 8. When plaintiff rested, the district court on its own initiative consolidated the preliminary injunction with the merits. Neither party objected. Defendant then presented its case. The hearing ended on July 13 and the district court took matters under advisement.

A written decision was soon issued. K-Mart Corp. v. Oriental Plaza, Inc., 694 F.Supp. 1010 (D.P.R.1988). The court held that defendant had breached the Lease. Id. at 1015. It concluded that injunctive relief was merited, id. at 1015-17, emphasizing that "K-Mart cannot recoup, even through legal damages, the injury to its goodwill caused by the visual obstruction of its store." Id. at 1016. In settling upon remediation, the court ordered OPI to raze the southernmost structure under construction and to replace it with no fewer than 30 parking spaces within 60 days. Id. at 1017-18. The court allowed completion of the two restaurant buildings, but permanently enjoined further development in the parking area except in strict compliance with the Lease. Id. at 1018. When OPI appealed, the district court stayed the operation of the mandatory injunctive relief previously ordered.

III. FRAMEWORK OF THE APPEAL

OPI, striving mightily to get out from under the burden imposed by the district court, has given us several blueprints charting routes of egress. In appellant's view, these comprise a series of independently sufficient ways in which it can be extricated from the yoke of the judgment below. Only three of these approaches warrant discussion.

A. Doing Equity.

Arguing the venerable maxim that "he who seeks equity must do equity," appellant asserts that K-Mart was guilty of laches, should be equitably estopped from maintenance of the action, and came to court with unclean hands. We think the maxim admirable, but do not believe that the precept is of much comfort to OPI in the circumstances at bar.

1. Laches/Estoppel. Because defendant's claims of laches and equitable estoppel derive from a common nucleus of operative fact, we treat them in the ensemble.

The equitable doctrine of laches bars assertion of a claim where a party's delay in bringing suit was 1) unreasonable, and 2) resulted in prejudice to the opposing party. Puerto Rican-American Ins. Co. v. Benjamin Shipping Co., 829 F.2d 281, 283 (1st Cir.1987). As a matter of federal civil procedure, laches is an affirmative defense. See Fed.R.Civ.P. 8(c). When a plaintiff brings suit within the limitation period, ² a defendant claiming laches has the burden of proving both unreasonableness of the delay and the occurrence of prejudice. The district court found that OPI failed to carry the devoir of persuasion. K-Mart Corp., 694 F.Supp. at 1017. We review that determination only for abuse of discretion. See Puerto Rican-American Ins. Co., 829 F.2d at 283 ("application of the [laches] doctrine is within the 'sound discretion' of the district court"); Park County Resource Council, Inc. v. United States Dept. of Agriculture, 817 F.2d 609, 617 (10th Cir.1987); Benoit v. Panthaky, 780 F.2d 336, 339 (3d Cir.1985).

In this case, the laches defense pivots off OPI's contention that plaintiff was aware of the construction for well over a year before it voiced any...