Massachusetts Mut. v. Associated Dry Goods

• Decision Date: 22 January 1992
• Docket Number: No. S92-2M.,S92-2M.
• Citation: 786 F. Supp. 1403
• Parties: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Plaintiff, v. ASSOCIATED DRY GOODS CORPORATION, a Virginia Corporation, and a wholly owned subsidiary of May Department Store Company, d/b/a L.S. Ayres & Company, Defendant.
• Court: U.S. District Court — Northern District of Indiana

786 F. Supp. 1403

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Plaintiff, v. ASSOCIATED DRY GOODS CORPORATION, a Virginia Corporation, and a wholly owned subsidiary of May Department Store Company, d/b/a L.S. Ayres & Company, Defendant.

No. S92-2M.

United States District Court, N.D. Indiana, South Bend Division.

January 22, 1992.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Richard Morgan, Joseph Fullenkamp, South Bend, Ind., Alan R. Fridkin, Office of Gen. Counsel, MassMutual Life Ins. Co., Springfield, Mass., for plaintiff.

John Obenchain, South Bend, Ind., Stephen J. Horace, Ronald J. Dolan, St. Louis, Mo., for defendant.

MEMORANDUM AND ORDER

MILLER, District Judge.

On October 25, 1991, Associated Dry Goods Corporation ("ADG") announced that the L.S. Ayres store it operates in the Scottsdale Mall in South Bend, Indiana would be closed as part of a company-wide reorganization. The mall's owner, Massachusetts Mutual Life Insurance Company ("MassMutual"), brings this suit for temporary and permanent injunctive relief requiring ADG to continue to operate the Ayres store for the duration of the twelve years remaining on the Ayres lease. The motion for preliminary injunction was heard on January 9, 10, and 13, 1992. For the reasons that follow, the court concludes that the preliminary injunction should be granted.

Courts ordinarily do not order one party to go through with a contract, because an award of damages for the breach of the contract usually gives the other party everything to which it is entitled. Here, however, the closing of the Ayres store will affect the plaintiff's mall in ways that make an award of damages insufficient. If the Ayres store closes, it simply will not be possible to decide at a later trial what damages resulted from the store's closing and what damages resulted from other factors. The lease's language and surrounding circumstances strongly indicate that the parties to the lease intended the Ayres store to continue to operate as an anchor store during the entire term of the lease, and not just to pay rent. Keeping the Ayres store open may cost the defendant a great deal of money, but the plaintiff must post a bond to insure against that risk. On the other hand, a bond or a later award of damages cannot address the risk to the plaintiff if the injunction is denied.

Courts ordinarily do not enter injunctions that will require the court's long-term involvement, but frequent court involvement is unlikely in light of the Scottsdale Ayres store's eighteen-year history and the defendant's interest in its stores' reputation. Even though no court ever has entered an injunction like the one sought here, the general rules concerning preliminary injunctions indicate that a preliminary injunction should be issued under the facts presented in this case. Accordingly, the court will grant the plaintiff's motion for a preliminary injunction requiring the defendant to reopen the store and operate it at least until trial. The injunction will become effective when the plaintiff posts security in the amount of $1 million.

I.

The court has jurisdiction under 28 U.S.C. § 1332. MassMutual is a corporation organized and existing under the laws of Massachusetts, having its principal place of business in Springfield, Massachusetts. ADG is a Virginia corporation with its principal place of business in Missouri, doing business in Indiana as L.S. Ayres & Company. ADG is a wholly-owned subsidiary of May Department Stores Company, a New York corporation with its principal place of business in Missouri.¹

A.

On October 4, 1971, Ayres Department Stores, Inc. (ADG's predecessor in interest) entered into a lease with an Ohio limited partnership,² to lease portions of the Scottsdale Mall, which was in the developmental stage. The Ohio partnership contracted as landlord and Ayres Department Stores, Inc. contracted as tenant of the building known as the Ayres building. The lease provided for the landlord's construction of an enclosed shopping center and gave the tenant additional rights to the mall and common areas as defined in the lease agreement. The term of the lease for the Ayres building commenced on August 1, 1973 and terminates on January 31, 2004, with renewal options. The lease binds the original parties' assignees and successors in interest.

The plans and specifications for the construction of the Ayres building were prepared in accordance with the tenant's specified designs; both the landlord and the tenant approved the plans and specifications.

The base rental rate for the Ayres building is approximately $254,000 per year for the thirty year lease, a figure that remains constant throughout the lease term. ADG also pays the landlord dues for membership in the mall's merchants' association and is billed a variable annual sum for maintenance of the mall's common areas. ADG also pays the real estate taxes on its building directly to the county treasurer, rather than to the landlord.

ADG (or its predecessor) has operated a department store in its space at Scottsdale Mall since 1973. MassMutual is the current successor landlord under the lease, having accepted a conveyance of the shopping center and assignment of all leases in lieu of foreclosure effective February 27, 1991. ADG, having assumed the prior tenant's obligation, is the Ayres building's current tenant.

Scottsdale Mall contains 658,000 square feet of gross leasable floor area on two levels. Scottsdale Mall has three anchor stores; Ayres, Montgomery Wards and Target.³ Ayres and Wards are on both levels, while Target has no second level. Tenants presently occupy 81% of the mall's gross leasable floor area. The Ayres store occupies 109,700 square feet of floor space, almost one-sixth of the mall's gross leasable floor area. If the Ayres store is vacated, the occupancy rate of the gross leasable floor area will be reduced to 63%. As measured by storefronts, Scottsdale has an occupancy rate of about 60%, with forty-seven of the 107 storefronts vacant.⁴

B.

A second enclosed traditional regional shopping mall, University Park Mall, opened in the South Bend area around 1980, about seven and a half miles from the Scottsdale Mall. The two malls are in direct competition. According to ADG's merchandising information, the areas from which its Scottsdale and University Park stores draw the majority of their customers overlap significantly. Scottsdale's area of exclusive influence is a comparatively small, sparsely populated area.⁵

To date, University Park generally has been a more successful shopping mall than Scottsdale. University Park has a much higher storefront occupancy rate,⁶ is considerably more profitable based on sales per square foot, is much larger and has more anchor tenants (four), is newer, and attracts many more customers than Scottsdale.

Ayres is the only department store to operate anchor stores at both Scottsdale and University Park, although the two malls have thirty-one non-anchor "specialty shops" in common. The decision to open the second store was made when the University Park Mall was being developed and was made by ADG's predecessor in interest. Based on the relevant demographics, sales figures, and trends, ADG believes that the South Bend market cannot support two Ayres stores.

ADG has made various marketing decisions based on the merchandising history of the two stores. It has found that higher-priced, higher-quality product lines do not sell as well at Scottsdale as at University Park. Accordingly, the two stores carry varying product lines, with the higher-priced, higher-quality product lines generally being more available at University Park, and lower-priced lines generally being more available at Scottsdale.⁷

ADG's University Park Ayres store sells more than two and one-half times as much merchandise as its Scottsdale store. Sales per square foot at the University Park Mall are more than double that of the Scottsdale store and the gap is widening.⁸ The University Park store grew by 49% in volume of sales from 1984 to 1990, while the Scottsdale store's volume of sales was $10.7 million in 1984 and 1990.⁹ The Scottsdale store realized profits of about $250,000 in 1988, about $200,000 in 1989, and about $320,000 in 1990. Although year-end figures for 1991 are not yet available, the Scottsdale store lost $120,000 during the "spring season" (February through July). ADG believes that the Scottsdale store has avoided yearly losses thus far only because of its efforts to reduce costs to a bare minimum, and that the University Park store is stronger because the University Park Mall is stronger.

C.

MassMutual placed a $17.3 million book value on the mall upon acquisition in 1991. In May, MassMutual contracted with the Dial Companies to manage the Scottsdale Mall, and Dial's major tenant lease coordinator, J.F. Carter, telephoned May senior vice president in charge of real estate, Duane R. Vaughan, to introduce himself. Mr. Carter and Mr. Vaughan scheduled a meeting to discuss Dial's future plans for the Scottsdale Mall. Mr. Carter and two Dial vice presidents later met with Mr. Vaughan during a trade show in Las Vegas. Dial presented its redevelopment plan for the Scottsdale Mall¹⁰ and Mr. Vaughan requested updates on the redevelopment plan. Mr. Vaughan does not remember seeing the materials presented to him; the court infers that Mr. Vaughan, who already was seeking a substitute tenant at Scottsdale, simply paid little attention.

After that meeting, MassMutual allocated funds for the first phase of Dial's redevelopment plan. Thus far, Dial's marketing efforts have failed to sign any new tenants, although leases have been tendered to prospective non-anchor tenants; a few non-anchor tenants, known as "specialty shops", have left Scottsdale since MassMutual and Dial took over.

On October 25, 1991, May (ADG's parent company) held a press conference and announced it would close the Scottsdale store by the end...