Regency Realty Grp., Inc. v. Michaels Stores, Inc.
| Decision Date | 30 July 2013 |
| Docket Number | Case No: 12-10594 |
| Parties | REGENCY REALTY GROUP, INC., Plaintiff, v. MICHAELS STORES, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Hon. Victoria A. Roberts
This matter is before the Court on Plaintiff's combined motion for reconsideration and summary judgment, and Defendant's motion for summary judgment.
Regency Realty Group, Inc. ("Landlord" or "Regency") filed this action for a declaration that it has an ongoing right to terminate the Shopping Center Lease ("Lease") it entered into with Michaels Stores, Inc. ("Tenant" or "Michaels"), or to reform the Lease. Michaels asserts counterclaims against Regency for breach of contract arising from wrongful termination of the Lease and violations of the Lease's exclusive use and confidentiality provisions.
For the following reasons, both motions are GRANTED IN PART and DENIED IN PART.
The following facts are undisputed. Michaels is a large national retailer of arts and crafts materials. Michaels has operated a retail store at the Fenton Village Marketplace in Fenton, Michigan (the "Shopping Center") since September of 2001. Regency owns the Shopping Center.
On January 8, 2001, Regency and Michaels entered into a Lease for 23,828 square feet of space at the Shopping Center. The parties executed a Memorandum of Lease that day, which Michaels recorded with the Genesee County Register of Deeds. The initial term of the Lease was ten years and ended on February 28, 2011, but the Lease contains two five-year options to extend. Michaels exercised the first option to extend, so the Lease, as extended, expires on February 29, 2016.
Three provisions of the Lease are at issue: (1) the On-Going Co-Tenancy Requirement; (2) the Exclusive Use Provision; and (3) the Confidentiality Provision.
The On-Going Co-Tenancy Requirement requires Regency to lease the anchor store in the Shopping Center to a regional or national tenant meeting certain requirements. It also sets forth the remedies available to the parties if Regency fails to satisfy the requirement.
One remedy available to Tenant if Landlord fails to maintain an anchor tenant is to pay reduced "Alternative Rent." The pertinent part of the Lease reads:
16.3 Failure of Other Required Lessees to Operate. [ . . . ] If at any time after the Rental Commencement Date the On-Going Co-Tenancy Requirement is not satisfied, all Minimum Rent shall be abated until such time as the On-Going Co-Tenancy Requirement is satisfied, and in lieu thereof, Tenant shall pay to Landlord on a monthly basis, thirty (30) days after the end of each calendar month, as "Alternative Rent," an amount equal to the product of (i) the entire amount of Gross Sales . . .made upon the Premises during such month or theportion thereof for which Alternative Rent is payable, multiplied by (ii) three percent (3%), but in no event will such Alternative Rent exceed the Minimum Rent which would have been payable for such period in the absence of this provision.
Regency initially satisfied the On-Going Co-Tenancy Requirement by entering into a lease with Borman's, Inc. to operate a Farmer Jack's Supermarket as anchor tenant. However, around July 5, 2007, Farmer Jack ceased operations at the Shopping Center and Landlord failed to find another anchor tenant. Michaels began paying the Alternative Rent when Farmer Jack ceased operations. In addition, in a letter dated January 18, 2008, Michaels reserved its right to exercise any other remedies available to it in the Lease.
The Lease provides Tenant a continuing right to terminate if the On-Going Co-Tenancy Requirement is not met for six months or more. Section 16.3 further states:
In addition to the rights of Tenant to pay "Alternative Rent," if (a) the non-satisfaction of the On-Going Co-Tenancy Requirement shall continue for a period of six (6) months beyond the initial failure to meet the On-Going Co-Tenancy Requirement and for so long as such non-satisfaction shall, or (b) the Initial Co-Tenancy Requirement is not satisfied within six (6) months after the date on which the Rental Commencement Date would otherwise have occurred but for the failure to satisfy the Initial Co-Tenancy Requirement, and for so long as such non-satisfaction shall continue, Tenant shall have the right to terminate this lease by sixty (60) days' written notice delivered to Landlord.
The parties agree that because the On-Going Co-Tenancy Requirement is not satisfied, Michaels has a continuing right to terminate the Lease upon sixty days' notice.
The Lease also provides Landlord a right to terminate the Lease in the event it fails to satisfy the On-Going Co-Tenancy Requirement. Section 16.3 further states:
Landlord shall likewise have a right to terminate this Lease at the end of the twelfth (12th) month following the initial nonsatisfaction of the Co-Tenancy Requirement by giving sixty (60) days prior written notice to Tenant of the termination.
The parties dispute the meaning of this provision. Michaels argues that it gives Regency a one-time option, at a fixed point in time, to terminate the Lease in the event it fails to satisfy the On-Going Co-Tenancy Requirement. Regency says its right to terminate is continuing, the same as Michaels'.
The Lease also contains an Exclusive Use Provision which prohibits Regency from leasing any space in the Shopping Center to any of Michaels' commercial competitors. The relevant portion of the Lease states:
16.4.1 Limitation on Use. Neither Landlord nor any entity controlled by Landlord will use, lease (or permit the use, leasing or subleasing of) or sell any space in or portion of the Shopping Center or any property contiguous to the Shopping Center . . . owned or controlled now or at any time hereafter by Landlord or any affiliate of Landlord, to any "craft store" selling arts and crafts, and arts and crafts supplies, picture frames or picture framing services, framed art, artificial flowers and/or plants, artificial floral and/or plant arrangements, or wedding or party goods (except apparel) . . . .
The Lease grants Tenant various cumulative remedies in the event a violation of the Exclusive Use Provision exists, including reduced rent, the right to terminate the lease, and injunctive relief.
Regency admitted that it entered into a new lease with Hobby Lobby, one of Michaels' main competitors, and that it "is barred by the Lease with Tenant from allowing Hobby Lobby to operate in the Shopping Center in competition with Tenant."1
The Lease contains a Confidentiality Provision which prohibits Regency fromdivulging the monetary and operating terms of the Lease or providing any copy of any part of the Lease to anyone except for certain individuals. It states:
17.15 Confidentiality of Lease Terms. Landlord will treat the monetary and operating terms and conditions of this Lease as confidential and will not divulge same to any person other than any existing or prospective mortgagee of the Shopping Center or any prospective purchaser of Landlord's interest in this Lease. Landlord shall not furnish copies of all or any part of this Lease to a person other than to a party as described in the preceding sentence.
On February 6, 2012, Landlord notified Tenant of its intent to terminate the Lease pursuant to Section 16.3 unless Tenant nullified the termination by agreeing to return to payment of the Minimum Rent. On February 7, 2012. Tenant's counsel informed Landlord that it did not have the right to terminate the Lease. This litigation followed.
On February 10, 2012, Regency filed this action, alleging two causes of action against Michaels: (1) declaration that Landlord has an ongoing right to terminate the lease; and (2) reformation of contract. Regency seeks a declaratory judgment that it acted within its rights under the Lease by sending a termination notice to Michaels. Specifically, it says that the Lease provides it with an ongoing right to terminate in the event the On-Going Co-Tenancy Requirement is not satisfied, just as it does to Michaels. In the alternative, Regency argues that the parties contemplated that the Lease would provide each an ongoing right to terminate; therefore, the Court should reform its language to conform to the parties' intent.
Michaels filed counterclaims for breach of contract, declaratory relief, and injunctive relief.
On March 6, 2012, the Court granted summary judgment to Michaels on Regency's claim for declaratory relief. The Court found that the provision of the Lease granting Landlord's termination right is unambiguous: its plain language grants Landlord a one-time option to terminate Tenant at the end of the twelfth month following non-satisfaction of the Co-Tenancy Requirement; Landlord did not timely exercise its right to terminate, and is barred from doing so now. Determinative of this finding is the fact that the same language granting Tenant an ongoing and continuing right to terminate is not included in the provision on Landlord's right to terminate. The Court reasoned that Regency and Michaels are sophisticated parties who presumably negotiated and entered into numerous commercial leases and acted upon the advice of counsel in drafting, negotiating, and entering into the Lease. And, given the different language used to state Tenant and Landlord's respective rights to terminate, the Court inferred that the parties considered whether to grant Landlord an ongoing right to terminate but ultimately decided to limit that right to Tenant.
The Court also denied Michaels' request for a preliminary injunction, finding no danger that Regency would lease to Hobby Lobby, evict...
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