Regency Realty Group, Inc. v. Michaels Stores, Inc.

Filing 28

ORDER (1) denying 5 Plaintiff's Motion for Summary Judgment; (2) Granting Defendant's Motion for Summary Judgment; (3) denying 8 Motion for Preliminary Injunction. Signed by District Judge Victoria A. Roberts. (CPin)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
REGENCY REALTY GROUP, INC.,
Plaintiff,
v.

Case No: 12-10594
Honorable Victoria A. Roberts

MICHAELS STORES, INC.,
Defendant.
________________________________/
ORDER (1) DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT; (2)
GRANTING DEFENDANT SUMMARY JUDGMENT; AND (3) DENYING
DEFENDANT’S MOTION FOR PRELIMINARY INJUNCTION
I.

INTRODUCTION
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”). Michaels
asserts a counterclaim against Regency for breach of contract; it seeks injunctive and
declaratory relief.
Two motions were pending for hearing on March 5, 2012: (1) Regency’s Motion
for Summary Judgment (Doc. 5); and (2) Michaels’ Motion for Preliminary Injunction
(Doc. 8). The parties stipulated to an Order Regarding Lease Termination. Michaels
maintains that the Stipulated Order does not moot its request for a preliminary
injunction.
Regency’s Motion for Summary Judgment is DENIED. Judgment enters as a

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matter of law for Michaels.
Michaels’ Motion for Preliminary Injunction is DENIED.
II.

BACKGROUND
The following facts, taken from the pleadings, do not appear to be in dispute.
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, 2008, Regency and Michaels entered into a Lease for 23,828
square feet of retail space at the Shopping Center. The parties executed a
Memorandum of Lease that day, which Michaels recorded with the Genesee County
Register of Deeds on or about March 14, 2001. 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.
The Court is asked to interpret two provisions of the Lease: (1) the On-Going CoTenancy Requirement; and (2) the Exclusive Use Provision.
A.

The On-Going Co-Tenancy Requirement

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

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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 CoTenancy 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 the
portion 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 continuously paid
the Alternative Rent from the time Farmer Jack ceased operations to the present. 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 CoTenancy Requirement is not met for six months or more. It states:
In addition to the rights of Tenant to pay “Alternative Rent,” if (a) the nonsatisfaction 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 CoTenancy 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.
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The Lease also provides Landlord a right to terminate the Lease in the event it
fails to satisfy the On-Going Co-Tenancy Requirement. It 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’.
B.

The Exclusive Use Provision

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 admits 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

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allowing Hobby Lobby to operate in the Shopping Center in competition with Tenant.”1
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 does not have the right to terminate the Lease.
On February 8, 2012, Landlord executed a new lease with Hobby Lobby for the
anchor tenant space. The new lease is contingent upon the termination of Michael’s
Lease; Michaels must vacate the Shopping Center. Landlord has ninety days to notify
Hobby Lobby that the lease with Michaels is terminated, and that Michaels vacated. If
the contingency is not satisfied within ninety days of February 8, 2012, Hobby Lobby or
Regency may terminate the new lease at their discretion.
III.

Procedural History
Regency alleges 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.

1

The parties stipulated that Michaels would nullify the Termination Notice and
return to payment of Minimum Rent pending resolution of the parties’ claims, and that
Regency would terminate its new lease with Hobby Lobby.
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Michaels asserts counterclaims for (1) breach of contract; (2) declaratory relief;
and (3) injunctive relief. Michaels states that Regency breached the Lease by
purporting to terminate it even though it was not contractually entitled to do so.
Michaels also states that Regency breached the Exclusive Use provision of the Lease
by entering into a new lease with one of its main competitors, Hobby Lobby. Michaels
seeks a declaratory judgment that Regency does not have an ongoing right to terminate
the Lease, and that the Exclusive Use provision of the Lease prevents Regency from
entering into a new lease with Hobby Lobby. Lastly, Michaels asks the Court to enjoin
Regency from terminating the Lease and from entering into a new lease with Hobby
Lobby.
Regency filed a motion for summary judgment on its claim for declaratory relief.
It says that if the Court enters summary judgment that the Lease grants it an ongoing
termination right, its contract reformation claim will become moot.
IV.

ANALYSIS
The central question in this litigation is whether Landlord properly exercised its

termination rights. If the termination was proper, then Tenant’s counterclaims fail.
A.

Regency’s Motion for Summary Judgment

The facts are set forth above and will not be repeated here. Regency supports
its motion with the Affidavit of Ryan Shane Ertel, Senior Leasing Agent at Regency.
Michaels supports its factual positions in response with the Declaration of Janet S.
Morehouse, Senior Director - Real Estate Administration at Michaels.
The sole issue is whether the Lease provides Regency with a continuing right to

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terminate the Lease upon the nonsatisfaction of the Co-Tenancy Requirement for
twelve months, or rather a one-time option to terminate exercisable only at the end of
the twelfth month following initial nonsatisfaction of the Co-Tenancy Requirement.
i.

Standard of Review

The Court will grant summary judgment in favor of the moving party if that party
establishes that “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986). “[W]hen a properly supported motion for summary judgment
is made, the adverse party ‘must set forth specific facts showing that there is a genuine
issue for trial.’” Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986); Fed. R. Civ. P.
56(e)(2). The Court views the evidence in favor of the non-moving party. Leahy v. Trans
Jones, Inc., 996 F.2d 136, 138 (6th Cir. 1993). However, the evidence supporting the
plaintiff’s position must be more than a mere scintilla; it must be sufficient for the jury to
reasonably find in favor of the plaintiff. Liberty Lobby, 477 U.S. at 252. “The judge’s
inquiry, therefore, unavoidably asks whether reasonable jurors could find by a
preponderance of the evidence that the plaintiff is entitled to a verdict- whether there is
evidence upon which a jury can properly proceed to find a verdict for the party
producing it, upon whom the onus of proof is imposed.” Id. (citation and internal
quotation marks omitted) (emphasis in original).
ii.

Parties’ Arguments

At issue is Section 16.3 of the Lease which concerns the parties’ right to
terminate the Lease in the event the Co-Tenancy Requirement is not satisfied. The

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section addressing Landlord’s right to terminate 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.” This follows immediately after the provision
granting Tenant the right to terminate after six months and “for so long as such
non-satisfaction shall continue.” See p.3, supra.
Both parties state that this contractual language is clear and unambiguous;
nevertheless, they dispute its meaning.
Regency maintains that the provision must be harmonized with the language
directly above it granting Tenant an ongoing right to terminate. Regency says that
harmonizing the two passages is consistent with one of the cardinal rules of contract
interpretation: that the contract must be construed as a whole. Further, Regency says
that “[t]here is nothing about this sentence that creates or even implies that the right to
terminate is anything other than ongoing.”
Regency says that the use of the term “likewise” in the provision regarding
Landlord’s rights is further proof that the passage must be construed consistent with the
manner in which a Tenant can exercise its termination right. Regency says that the
term “likewise” has the effect of incorporating the phrase “and for so long as such nonsatisfaction shall continue” from the previous passage. Regency concludes that “[b]y
using the word ‘likewise’ in the sentence providing Landlord with its termination right,
Section 16.3 clearly applies the same procedure to both Tenant’s and Landlord’s
termination rights, with the only difference being that Tenant may terminate after six
months and Landlord must wait twelve months.”
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In addition, Regency argues that if the contract is not interpreted to provide
Landlord with an ongoing termination right, two absurd results would follow. First,
Regency says that if “likewise” does not incorporate the general procedures identified in
the sentence granting Tenant its right, Landlord would be able to terminate even after a
new anchor tenant began occupying the space. This result clearly was not
contemplated by either party. Second, Regency says that the language giving Landlord
a termination right “at the end of the twelfth (12th) month” is only workable if that date is
a condition precedent that must be met in order for Landlord to exercise the termination
right thereafter. Tenant’s interpretation that the date is a deadline rather than a
condition precedent “would require Landlord to issue its termination notice on the exact,
precise, single day that reflected the ‘end of the twelfth (12th) month following the initial
unsatisfaction of the Co-Tenancy Requirement.” Regency says Tenant’s interpretation
is only workable if the contract sets forth Landlord’s termination rights with great
specificity. Regency says it fails to do so; it doesn’t specify the date that constitutes the
end of the twelfth month. Therefore, Regency says Michaels’ interpretation is absurd.
In short, Regency says that “likewise” cannot be read out of the sentence
because it would violate the principle of statutory construction requiring every word to
be assigned meaning. In addition, likewise means that the general procedures for
exercising the termination right identified in the sentence granting Tenant its right are
incorporated into the sentence granting Landlord its right. It follows that Landlord also
has an ongoing right to terminate, exercisable after twelve months rather than six.
Tenant, on the other hand, says that the plain language of the contract gives
Landlord a one-time option to terminate exercisable at the end of the twelfth month of
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non-satisfaction of the Co-Tenancy Requirement. Landlord did not exercise its option to
terminate at that time; it cannot do so now.
Tenant says that the fact that the parties used language granting tenant an
ongoing right to terminate (“and for so long as such non-satisfaction shall continue”) but
did not use the same language with respect to Landlord’s right to terminate is
dispositive. It shows that the parties knew how to grant a continuing option but chose
not to do so with respect to Landlord. Tenant says that Landlord is really asking the
Court to impermissibly alter the plain language of the contract by replacing “at the end
of the twelfth month” with “at any time after the twelfth month.” The use of the word “at”
rather than “after” was a deliberate decision that the Court must respect. Lastly, Tenant
says Landlord’s argument that it is absurd to require a party to terminate on a particular
date is a red-herring because there is nothing extraordinary about requiring a party to
do something on a precise date. For example, a lease has a particular start and end
date; rent is due on a particular date; etc.
Michaels says there is no genuine issue of material fact with respect to the
claims set forth in Regency’s Complaint, and that judgment should enter in Michaels’
favor on those claims as a matter of law.
iii.

Discussion

Regency properly supported its motion for summary judgment with a sworn
affidavit. See Fed. R. Civ. P. 56(c)(1). The materials Michaels submitted in response
do not contradict Regency’s factual allegations. See Fed. R. Civ. P. 56(e)(2). Both
parties agree that there is no genuine issue of material fact regarding Regency’s claims
and that the Court may enter judgment as a matter of law.
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The Court finds that there is no genuine issue as to any material fact. It is
undisputed that the lease between Regency and Michaels contains the On-Going CoTenancy Requirement, and that the Requirement has not been satisfied since July
2007. It is also undisputed that Regency attempted to exercise its termination rights on
February 8, 2012. All that remains is for the Court to interpret the Lease and determine
if Regency’s termination of Michaels was proper.
The Court begins by reiterating the guiding principles of contract interpretation
under Michigan law. The proper interpretation of a contract is a question of law in
Michigan. Coates v. Bastian Bros., Inc., 741 N.W.2d 539, 543 (Mich. Ct. App. 2007).
“The primary goal in the construction or interpretation of any contract is to honor the
intent of the parties.” Rasheed v. Chrysler Corp., 445 Mich. 109, 127 n.28 (1994). The
Court must limit its analysis to the words within the four corners of the document; it
“does not have the right to make a different contract for the parties or to look to extrinsic
testimony to determine their intent when the words used by them are clear and
unambiguous and have a definite meaning.” UAW-GM Human Resource Center v. KSL
Recreation Corp., 579 N.W.2d 411, 414 (Mich. Ct. App. 1998) (internal citation omitted).
“Contractual language is construed according to its plain and ordinary meaning, and
technical or constrained constructions are to be avoided.” Dillon v. DeNooyer Chevrolet
Geo, 550 N.W.2d 846 (Mich. Ct. App. 1996). Courts may not impose ambiguity on clear
contract language. Grosse Pointe Park v. Michigan Muni. Liability &. Prop. Pool, 473
Mich. 188, 198 (2005). Only when contractual language is ambiguous does its meaning
become a question of fact. Coates, 741 N.W.2d at 543.
The parties agree that the plain language of the Lease provision granting
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Landlord the right to terminate is unambiguous and that it must be given its plain and
ordinary meaning. However, they dispute whether Regency’s purported termination of
Michaels on February 8, 2012, violates the clause. But, “[t]he fact that the parties
dispute the meaning of a [contract] does not, in itself, establish an ambiguity.” Gortney
v. Norfolk & Western Ry. Co., 549 N.W.2d 612, 615 (Mich. Ct. App. 1996) (internal
citations omitted). Whether a contract is ambiguous is a question of law for the court.
Port Huron Ed. Ass’n v. Port Huron Area School Dist., 452 Mich. 309, 323 (1996)
The Court agrees that the provision of the Lease granting Landlord’s termination
right is unambiguous. Further, the Court finds that the provision grants Landlord a onetime option to terminate Tenant at the end of the twelfth month following nonsatisfaction of the Co-Tenancy Requirement. Landlord did not timely exercise its right
to terminate; it is barred from doing so now.
The Lease plainly and unambiguously grants Tenant an ongoing and continuing
right to terminate (“and for so long as such non-satisfaction shall continue...”). Neither
party disputes this. The fact that the provision granting Landlord a right to terminate
does not include this same language is determinative. Regency and Michaels are both
sophisticated parties that have presumably negotiated and entered into numerous
commercial leases. Presumably, both parties acted upon the advice of counsel in
drafting, negotiating, and entering into the Lease. The fact that the parties used
language granting a continuing option in Michael’s termination provision and did not use
that same language in Regency’s option to terminate is convincing evidence that
Regency does not have an ongoing option. The proper inference is that the parties
considered whether to grant Landlord an ongoing right to terminate but ultimately
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decided to limit that right to Tenant.
The Court is unconvinced by Plaintiff’s argument that the use of the term
“likewise” in the provision granting Landlord’s termination right incorporates the
language which provides Tenant with an ongoing and continuing right to terminate. The
use of the term likewise indicates that Landlord also has the right to terminate; it does
not indicate that Landlord’s termination right is procedurally identical to Tenant’s. After
the term likewise, the contract describes the procedures by which Landlord may
exercise its termination right. These procedures are materially different from those
granted Tenant. Landlord essentially asks the Court to alter the plain language of the
contract by changing “at the end of the twelfth month” to “after the end of the twelfth
month.” The Court, however must honor the parties’ bargain and respect the plain
language of the contract as written. See Nextep Systems, Inc. v. OTG Management,
Inc., No. 10-14473, 2011 WL 3918871 at *11 (E.D. Mich. Sept, 7, 2011) (Roberts, J.)
(“The Court may not alter the plain language of the [contract] by reading requirements
into it that are not there.”).
Nor does the Court agree with Landlord that this reading of its termination
provision leads to absurd results. First, there is nothing extraordinary about requiring
the parties to do something on a precise date. The fact that the Lease does not set
forth a specific date upon which Landlord must exercise its termination right is obviously
because such date depends upon the date when the On-Going Co-Tenancy
Requirement ceases to be satisfied. Regency’s strained hypothetical about what would
happen if it attempted to terminate the lease at the end of the twelfth month even
though the co-tenancy clause had been satisfied in the meantime is unconvincing.
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Assuming such a scenario would ever occur, Tenant could simply issue a letter within
30-days recognizing that it had returned to paying Minimum rent and nullifying the
termination notice, all as contemplated by the Lease.
iv.

Conclusion

The Lease unambiguously grants Landlord a one-time option to terminate the
Lease exercisable at the end of the twelfth month of non-satisfaction of the Co-Tenancy
Requirement. Landlord did not timely exercise its right to terminate. Its attempt to do
so on February 8, 2012 is invalid. Landlord’s motion for summary judgment is denied.
Judgment on the termination issue enters for Tenant as a matter of law. See Fed. R.
Civ. P. 56 (f); Excel Energy Inc. v. Cannelton Sales Co., 246 Fed.Appx. 953, 960-61 (6th
Cir. 2007).
B.

Michaels’ Motion for Preliminary Injunction

A preliminary injunction is an extraordinary remedy designed “to preserve the
relative positions of the parties until a trial on the merits can be held.” Univ. of Texas v.
Camenisch, 451 U.S. 390, 395 (1981). When presented with a motion for preliminary
injunction, a court addresses four factors: (1) the likelihood of success on the merits; (2)
irreparable harm that could result if the injunction is not issued; (3) the impact on the
public interest; and (4) the possibility of substantial harm to others. Basicimputer Corp.
v. Scott, 973 F.2d 507, 511 (6th Cir. 1992). The party moving for a preliminary bears the
burden to affirmatively demonstrate that it is entitled to injunctive relief. The burden “is
much more stringent than the proof required to survive a motion for summary
judgment.” Nextep Systems, Inc. v. OTG Management, Inc., No. 10-14473, 2011 WL

14

3918871 (E.D. Mich Sept. 7, 2011).
Michaels has not met its burden of proof; it cannot show that irreparable harm
could result if the injunction is not issued. “Absence of irreparable injury must end this
court’s inquiry.” Vander Vreken v. Am. Dairy Queen Corp., 261 F. Supp. 2d 821, 824
(E.D. Mich 2003). The parties entered into a Stipulated Order in which Regency agreed
to terminate its new lease with Hobby Lobby and Michaels agreed to return to paying
the Minimum Rent pending a determination of the parties’ rights under the Lease. In
addition, Regency has repeatedly maintained throughout this litigation that under no
scenario would Michaels and Hobby Lobby occupy the Shopping Center
simultaneously.
The Court finds that there is no present danger that Hobby Lobby will occupy the
shopping center in violation of the Exclusive Use provision of the Lease. In addition,
since the Court found that Regency did not have a right to terminate the Lease with
Michaels, there is no present danger that Michaels will be evicted from the Shopping
Center. Lastly, the parties agreed to enter into a protective order to prevent the
disclosure of confidential financial information. Thus, the present posture of this case
does not present a risk of irreparable injury to Michaels; if circumstances change,
Michaels can return to Court to seek a preliminary injunction.

V.

CONCLUSION
The Lease does not allow Regency to terminate Michaels’ tenancy. Regency’s

motion for summary judgment is DENIED. Judgment enters on Regency’s termination

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claim as a matter of law for Michaels. Michaels’ Motion for Preliminary Injunction is
DENIED.
This case will proceed on Regency’s claim for reformation, and Michaels’
counterclaims.
IT IS ORDERED.

S/Victoria A. Roberts
Victoria A. Roberts
United States District Judge
Dated: March 6, 2012
The undersigned certifies that a copy of this
document was served on the attorneys of
record by electronic means or U.S. Mail on
March 6, 2012.
s/Carol A. Pinegar
Deputy Clerk

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