Stores v. Benderson–Wainberg Assocs., L.P.

Citation668 F.3d 1019
Decision Date22 March 2012
Docket NumberNos. 10–3625,10–3627.,s. 10–3625
PartiesBEST BUY STORES, L.P., Plaintiff–Appellee, v. BENDERSON–WAINBERG ASSOCIATES, L.P.; DDR Flatiron LLC; DDR Hendon Nassau Park II, LP; DDR MDT Cool Springs Point LLC; DDR MDT Great Northern, LLC; DDR MDT Lakepointe Crossing, LP; DDR MDT Riverdale Village Outer Ring, LLC; DDR MDT Shoppers World LLC; DDRA Ahwatukee Foothills, LLC; DDRC PDK Salisbury LLC; DDR MDT Fayetteville Spring Creek, LLC; DDR MDT Turner Hill Marketplace, LLC; JDN Realty Corporation; BG Boulevard III, LLC, a Delaware Limited Liability Corporation, Defendants–Appellants,Developers Diversified Realty Corporation; JDN Development Company, Inc.; John Doe, # 1, Defendants.Best Buy Stores, L.P., Plaintiff–Appellant, v. Developers Diversified Realty Corporation; Benderson–Wainberg Associates, L.P.; DDR Flatiron LLC; DDR Hendon Nassau Park II, LP; DDR MDT Cool Springs Point LLC; DDR MDT Great Northern, LLC; DDR MDT Lakepointe Crossing, LP; DDR MDT Riverdale Village Outer Ring, LLC; DDR MDT Shoppers World LLC; DDRA Ahwatukee Foothills, LLC; DDRC PDK Salisbury LLC; DDR MDT Fayetteville Spring Creek, LLC; DDR MDT Turner Hill Marketplace, LLC; JDN Realty Corporation; BG Boulevard III, LLC, a Delaware Limited Liability Corporation, Defendants–Appellees,JDN Development Company, Inc.; John Doe, # 1, Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

OPINION TEXT STARTS HERE

Steven S. Kaufman, argued, Cleveland, OH, Jennifer A. Lesny Fleming, Cleveland, OH, Aaron D. Van Oort, and Martin S. Chester, Minneapolis, MN, on the brief, for appellants/cross-appellees.

Joel A. Mintzer, argued, Minneapolis, MN, Robert A. Machson, Weston CT, and Andrea Kloehn Naef, Minneapolis, MN, on the brief, for appellee/cross-appellant.

Before MURPHY, BYE, and SMITH, Circuit Judges.

SMITH, Circuit Judge.

Best Buy Stores, L.P. (Best Buy) sued various commercial landlords 1 (collectively, “Landlords”) and the Landlords' property manager, Developers Diversified Realty Corporation (DDRC), alleging that DDRC impermissibly charged Best Buy for insurance-related costs under various lease agreements. The Landlords argued that the leases did permit these charges and asserted various equitable defenses arguing that Best Buy had waived its objection to those charges. Best Buy moved for summary judgment on its breach of contract, declaratory judgment, and breach of fiduciary duty claims. The Landlords filed a cross motion for partial summary judgment against Best Buy's breach of contract claim. The district court granted Best Buy's motion for summary judgment on its breach of contract and declaratory judgment claims. The district court also granted the Landlords' motion for summary judgment on Best Buy's breach of fiduciary duty claim and some of Best Buy's fraud claims. The district court then awarded damages to Best Buy, allowing it to recoup the amount it paid for the insurance to the Landlords with pre-judgment interest. Both parties appeal. For the reasons explained below, we affirm in part, and reverse in part.

I. Background

Since 1998, Best Buy has leased commercial real estate space from DDRC, a publicly traded real estate investment trust that owns and manages shopping centers. Under various lease agreements, Best Buy rented 15 retail properties from the Landlords.2

Although not uniform, the leases generally required the Landlords to obtain property and liability insurance for the common areas of the shopping centers. In turn, the leases required Best Buy to reimburse the Landlords for the cost of purchasing this insurance. Attempting to comply with these provisions, DDRC purchased blanket insurance policies with high deductibles, typically $100,000, from third-party commercial insurance companies for all of the properties that it managed. DDRC then assumed the risks of the high deductible. As compensation for assuming this risk, DDRC charged the Landlords what it believed to be a reasonable premium. The Landlords then passed this premium charge on to Best Buy. DDRC named this arrangement the “First Dollar Program.”

At the beginning of each lease year, DDRC sent Best Buy prospective budgets for the estimated costs associated with leasing space in the various facilities. DDRC then billed Best Buy in accordance with those budgets. After each billing year, DDRC would send Best Buy reconciliation documents. In these documents, DDRC would either request additional payments if the actual costs exceeded the budget or credit Best Buy for overpayments if the costs were lower than the budget. While the reconciliation documents noted the costs for insurance, including the First Dollar Program, they did not explain how DDRC calculated this cost. As the district court noted:

The reconciliation documents for the 1998 and 1999 lease years noted that the insurance allocations “include premiums collected by Mesirow Insurance Services and funding for large deductibles collected by DDRC.” That language was altered in the 2000 and 2001 lease years to provide that the insurance allocations “include premiums and funding for large deductibles. Premiums are collected by Mesirow Insurance Services. Funding for large deductibles [is] collected by DDRC.” In 2002 and 2003, DDRC included a separate line item identifying the “deductible cost.” In addition, the reconciliation documents noted that [i]nsurance company costs collected by Mesirow Insurance Services. Self–Insured Deductible costs charged for and collected by DDRC.” The 2004 reconciliation documents provided a “First Dollar Program Cost Summary.” This summary identified the charges for the first dollar premiums and noted that DDRC's “program provides first dollar coverage to Tenants for incurred General Liability and Property losses. In the event of an insured loss, incurred losses are not charged back to a Tenant but retained by [DDRC].”

Best Buy Stores, L.P. v. Developers Diversified Realty Corp., 636 F.Supp.2d 869, 875–76 (D.Minn.2009) (record citations omitted).

For the 2004 and 2005 lease years, DDRC created two captive insurance companies, American Property Protection Company (APPC) and National Property Protection Company (NPPC).3 These companies provided coverage under the First Dollar Program. Thus, DDRC paid premiums to its captive insurance companies for insuring the within-deductible risk and billed the Landlords for these premiums. The Landlords, in turn, billed Best Buy its pro rata share of the premiums.4

As early as March 3, 1999, Best Buy received a 1998 memorandum from DDRC explaining the First Dollar Program (the 1998 Memorandum”). The 1998 Memorandum stated:

In addition to the standard variables considered by the insurer to establish the premium for the public liability and property damage coverage, [DDRC] has been able to negotiate significant reductions of the premium by agreeing to self fund the first $100,000 of public liability claims, inclusive of attorney fees, court costs and related expenses, and the first $25,000 of property loss, before the insurer would be required to pay any excess loss.... Because of its obligation to self fund the initial $100,000 of public liability claims and $25,000 of property damage claims, [DDRC] is given more control over the administration and resolution of its claims which helps to maintain the lower premium regardless of fluctuations in the marketplace. This self-funded coverage, while similar to a deductible, is not, in fact, a deductible....

While [DDRC] has assumed 100% of the risk for self-funded and uninsured losses, this risk is not passed on to the shopping center tenants who are obligated to reimburse the landlord its pro[ ]rata share of insurance. Instead, [DDRC] includes in its insurance billing to its tenants a self-funded allocation which is intended to compensate [DDRC] for assuming 100% of the risk for self-funded and uninsured loss. However, the aggregate cost of the premium and the self-funded allocation is less than the cost for first dollar coverage for each property on a “stand alone” basis (i.e. insurance quoted on a single property basis rather than a blanket policy basis for multiple properties) under a standard commercial policy with no self-funded reimbursement obligation by the insured. It should also be noted that while many insurance companies may be willing to quote a price for first dollar or higher deductible coverage, most insurance companies are unwilling to actually issue a policy of this nature due to the higher risks involved in insuring only a single property. Additionally, tenants should be made aware that its pro[ ]rata share of the premium and self-funded allocation is the only insurance obligation the tenant is required to pay during the fiscal year. Most landlords who maintain standard commercial insurance policies with deductibles will include with the annual common area maintenance (“CAM”) charge any dollars the landlord is required to pay for legal expense and/or deductible payments in addition to the prorata share of the higher premium. Therefore, the tenant pays its pro[ ]rata share of the premium, plus any out-of-pocket expenses incurred by the landlord to pay the deductible portion of coverage and legal expenses, if applicable. This amount is not fixed and could significantly increase the tenant's CAM charge.

Best Buy paid its rent and associated costs, including the premiums for the First Dollar Program, from 1999 until it received a judgment from the district court in 2009.

Starting in 2000, to ensure timely rental payments and avoid default, Best Buy began sending standard form objection letters with its rental payments to the Landlords, noting that the property leases may be subject to a more thorough audit in the future. The letter stated that “if Tenant is required to object to the reconciliation in order to preserve the right to audit, please allow this notice to serve as said objection, pursuant to the terms of the...

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