Three RP Limited Partnership v. Dick's Sporting Goods, Inc.

Filing 92

ORDER by Judge Ronald A. White denying plaintiff's motion for partial summary judgment ( 49 Motion for Partial Summary Judgment ), granting defendant's motion for summary judgment ( 63 Motion for Summary Judgment ) and deeming as moot defendant's motion in limine ( 78 Motion in Limine ) (lal, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
THREE RP LIMITED PARTNERSHIP,
an Oklahoma limited partnership,
Plaintiff,
v.
DICK=S SPORTING GOODS, INC.,
a Delaware corporation,
Defendant.

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Case No. CIV-18-003-RAW

ORDER
Before the court is the motion of the plaintiff for partial summary judgment and the motion
of the defendant for summary judgment. This lawsuit involves a commercial lease for real
property in Muskogee, Oklahoma. 1

On December 21, 2017, plaintiff commenced an action in

the District Court of Muskogee County, Oklahoma. Plaintiff titled its action APetition for Rent
and Possession of Premises.@ The First Cause of Action states that it seeks rent due for November,
2017. The Second Cause of Action seeks an order of the court placing plaintiff in possession of
the leased premises, without terminating the lease. Defendant removed the action to this court on
January 5, 2018. Defendant filed a counterclaim (#9) and an amended counterclaim (#21),
seeking a declaratory judgment regarding Section 1.6 of the Lease, which sets forth an AInitial CoTenancy Requirement.@

A[O]n September [5], 2014, Defendant Dick=s Sporting Goods, Inc. (ADSG@) entered into
a written lease agreement (ALease@) with landlord Vector Securities Corporation (AVector@) for
approximately 40,000 square feet of space in a shopping center known as the Three Rivers Plaza
(the >Shopping Center=) in Muskogee, Oklahoma. On March 2, 2015, Vector assigned all rights,
title, and interest in and to the Lease to Plaintiff Three RP Limited Partnership (>Plaintiff=).@ Three
RP Limited Partnership v. Dick=s Sporting Goods, Inc., 2017 WL 4295193, *1 (E.D.Okla.2017).
Henceforward in this order, the court will refer to Aplaintiff@ or A3RP@.
1

Plaintiff moves for partial summary judgment on two issues: (1) the Aright to terminate@
asserted by defendant under Section 1.6(c)(i) of the Lease constitutes a penalty and is void under
Oklahoma law; and (2) Defendant is estopped from disapproving certain Tenants in the Shopping
Center as ARequired Tenants@ under Section 1.6(a) of the Lease. In its motion, defendant moves
for summary judgment as to all claims and counterclaims.
Summary judgment is appropriate if Athe movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.@ Rule 56(a)
F.R.Cv.P. An issue is genuine if there is sufficient evidence on each side so that a rational trier
of fact could resolve the issue either way. An issue of fact is material if under the substantive law
it is essential to the proper disposition of the claim. J.V. v. Albuquerque Public Schs., 813 F.3d
1289, 1296 (10th Cir.2016). When applying this standard, the court views the evidence and draws
reasonable inferences therefrom in the light most favorable to the nonmoving party. Wright v.
Experian Info. Sols., Inc., 805 F.3d 1232, 1239 (10th Cir.2015). 2
Section 1.6(a) of the Lease sets forth an Ainitial co-tenancy provision@ at issue here.
Section 1.6(a) defines an AInitial Co-Tenancy Requirement@ to mean that (1) certain identified key
stores are open at the Shopping Center, and (2) a specified portion of the remaining space in the
Shopping Center is operated by certain types of national or regional retailers (ARequired Tenants@)
that are actively open and operating as a retail use in substantially all of their premises. In
previous litigation, the parties agreed that the first prong was satisfied by the tenancies of TJ Maxx

2

Cross motions for summary judgment are to be considered independently, and the denial
of one does not require the grant of another. See Philadelphia Indem. Ins. Co. v. Lexington Ins.
Co., 845 F.3d 1330, 1336 n.4 (10th Cir.2017).

2

and ULTA.

See 2017 WL 4295193, *1.

The previous litigation resolved a dispute as to

interpretation of the amount of LFA (leasable floor area) which was required to be open and
occupied. Judge Payne=s Opinion and Order was entered on September 27, 2017. No appeal was
taken.
ARequired Tenant@ is defined in Section 1.6(a) as being either a Anational@ retailer operating
at least 50 high quality retail stores nationally, or a Aregional@ occupant satisfactory to DSG in its
sole discretion. 3RP claimed that the Initial Co-Tenancy Requirement was met on October 25,
2017, when First United Bank purportedly opened for business in two spaces comprising more
than 12,00 square feet of space at the Shopping Center.
The present litigation also requires interpretation of the second prong. 3 It is not disputed
that Section 1.6(c)(i) gave defendant the right to terminate the Lease in the event the Initial CoTenancy Requirement was not met within two years following the ARental Commencement Date.@
The parties further agreed that the Rental Commencement Date Awould be deemed to have
occurred on October 28, 2015," and that Athe Initial Co-Tenancy Requirement was not satisfied as
of the Rental Commencement Date.@ (#64, &10, page 7 of 30 in CM/ECF pagination). The
Lease included a provision that allowed DSG to take possession of its leased space and pay
percentage rent for two years, which DSG elected to do. (#50 at 3, &20). The parties disagree
as to whether the requirement was satisfied on or before October 28, 2017 (i.e., the two year
deadline). On November 9, 2017, defendant provided its notice of termination, terminating the

3

In the previous litigation, Judge Payne interpreted the lease according to Oklahoma law.
The parties have not pointed to a lease provision addressing this point and have not objected to
application of Oklahoma law.

3

Lease as of January 26, 2018 (#68-14). On November 10, 2017, plaintiff sent defendant a notice
of default, stating that the Initial Co-Tenancy Requirement had been timely satisfied (#68-15).
Plaintiff first argues that the Aelection to terminate@ under Section 1.6(c)(i) is an
unenforceable penalty and void under Oklahoma law. See 15 O.S. '213. Defendant responds
that ADSG=s termination right was a legitimate, agreed-upon contract term.@ (#57 at page 5 of 29
in CM/ECF pagination). The court finds no Oklahoma authority precisely dealing with the
situation presented in the case at bar. It has been recognized that A[a] commercial lease may give
one party the option to terminate the lease by notice upon the happening of a certain event.@ In
re 8800 LLC, 2019 WL 268577, *24 (Bkr. C.D. Calif. 2019). Plaintiff argues that DSG=s act of
terminating the Lease was unreasonable.
Both parties discuss Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232
Cal.App.4th 1332 (2015) and reach different conclusions. In that case, the Lease contained a
clause granting a tenant an option to terminate upon 30 days= notice if the anchor tenant ceased
operations. The court (applying California law) held that Awhen a commercial lease contains a
clause allowing termination upon the occurrence of contingencies that (1) are agreed upon by
sophisticated parties and (2) have no relation to any act or default of the parties,@ the clause did
not constitute a penalty. Id. at 1367. After finding the first prong satisfied, the court also found
the second prong satisfied because Aneither Ross [i.e., the cancelling tenant] not Grand Prospect
[i.e., the landlord] could control whether Mervyn=s [i.e., the anchor tenant] continued to operate a
store in the shopping center or whether that space would be occupied by the type of anchor tenant
specified in the Lease.@ Id.
This ruling appears to precisely fit the present facts and support a conclusion that the clause

4

does not constitute a penalty.

This court, however, finds itself in disagreement with the

application of the second prong by the California court. Rather, this court agrees with the present
plaintiff that the cancellation in Grand Prospect did have relation to acts or default of the parties.
(#72 at 4).

While the landlord there could not control whether Mervyn=s continued operations,

it did have the responsibility to bring in a satisfactory replacement anchor tenant. In the case at
bar, the Lease imposed the obligation on 3RP to achieve co-tenancy.
If this court were to employ the Grand Prospect test (as stated, not as applied, by the
California court) the court would find plaintiff B while not meriting summary judgment in its favor- has raised a genuine dispute of material fact as to whether the cancellation clause herein
constituted a penalty. This court, however, declines to adopt that test. No Oklahoma case has
adopted the test used in Grand Prospect. A federal court is generally reticent to expand state law
without clear guidance from the highest court.

SCO Group, Inc. v. International Business

Machines Corp., 879 F.3d 1062, 1082 (10th Cir.2018). A party encouraging a federal court to
apply a new legal principle under state law must make a Astrong showing@ that the highest court of
that state would adopt that principle if presented with the question. Id. Plaintiff has failed to
make such a showing.
A party invoking the cancellation option (standing alone) is not imposing a penalty; such
action merely restores the parties to the status quo ante. If (by contrast) terminating the lease
were accompanied by seeking to enforce a liquidated damages provision of some sort, such might
constitute a penalty, but no such conduct appears here. 4 Plaintiff argues that the provision is

4

As plaintiff notes, the Lease did contain a liquidated damages provision (Section 3.3(c));
this provision, however, involves a different contingency (construction not completed), and was

5

Apenal in effect@ (#50 at 5), based upon inequitable cost to 3RP and lack of cost to DSG, but the
court is not persuaded. The Oklahoma cases cited by plaintiff appear to deal with monetary
penalties, and this court finds them distinguishable. See also 15 O.S. ''214 & 215.
Plaintiff also argues that A[t]he effect of DSG reserving to itself in the Lease both the right
to terminate and the right to define after the Lease was signed the basis for termination, in its sole
discretion, renders the right to terminate provision illusory.@ (#72 at 2)(emphasis in original). 5
Plaintiff cites Group One Realty, Inc. v. Dahr Properties, 404 P.3d 905, 908 (Okla.Civ.App.2017),
in which the court ruled that A[a]n offer pursuant to which the promisor retains an option
exercisable in his sole discretion will be held illusory unless the court can determine that his
discretion is bridled by a good faith or other standard.@ (quoting 1 Williston on Contracts '4:27
(4th ed.)). The court stated: Awe hold that the objective >reasonableness= standard is appropriate
for contract provisions that are conditioned on the sole satisfaction of one party.@ Id.
DSG points to other authority, although it likewise is not from the Supreme Court of
Oklahoma. AWhile >the reservation of a unilateral right to cancel [an] entire agreement is so broad
as to negate the existence of any consideration in that the promise is essentially empty or illusory,=
if >notice of cancellation is required the promisor is bound sufficiently so that his promise to buy
or give notice of cancellation meets the requirement of consideration.=@ Hardin v. First Cash
Financial Services, Inc., 465 F.3d 470, 478 (10th Cir.2006)(quoting Wilson v. Gifford Hill & Co.,

not invoked by DSG. Plaintiff does not contend that the Co-Tenancy Rent defined in Section 1.6
constituted a penalty.
5

Plaintiff contends that AOccupant is a defined term, but >national= and >regional= are not
defined terms@ and the definitions upon which DSG now relies were not disclosed to 3RP before
the Lease was signed. Id.

6

Inc., 570 P.2d 624, 626 (Okla.Civ.App.1977))(emphasis added). Here, DSG right to terminate
was not unrestricted; it was subject to a notice requirement. 6 DSG gave such notice, which
moreover could only be given after the expiration of two years from the Rental Commencement
Date. 7
There is an argument that, despite the bare language quoted above, a cancellation even
given with required notice might be found arbitrary. AEvery contract in Oklahoma contains an
implied duty of good faith and fair dealing.@ Wathor v. Mut. Assurance Adm=rs, Inc., 87 P.3d 559,
561 (Okla.2004). In describing the applicable rule, the treatise referenced above states: A[I]f one
party to an agreement reserves an unqualified right to cancel the bargain, no legal rights can arise
from it while it remains executory. However, if the party may only cancel upon dissatisfaction,
for good cause shown, in the exercise of the judgment of the promisor as a fiduciary for others,
upon the giving of reasonable notice, or upon any other condition not within the promisor=s control,
the promise is nevertheless enforceable.@ 1 Williston on Contracts, '4:27 (4th ed.)(footnotes
omitted)(emphasis added).
As stated, plaintiff argues that because certain terms (Aregional,@ Anational,@ Abank,@
Adeemed retail,@ and Aincidental to retailing@) are undefined within the Lease, this leaves the
meaning of the terms within DSG=s sole discretion. (#72 at 4). Defendant responds that it does not
assert such a unilateral right, but rather Athe terms should be given their plain meaning and the

6

The cancelling party in Group One also provided written notice of its election to
terminate the contract. 404 P.3d at 907.
Defendant refers to a 12 month time period (see, e.g., #80 at page 7 of 12 in CM/ECG
pagination) but does not explain further.
7

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meaning they are given in the retail leasing industry.@

(#80 at page 7 of 12 in CM/ECF

pagination).
Plaintiff argues that the Initial Co-Tenancy Requirement was met as of October 26, 2017,
because the requisite LFA was Aleased and open for business.@ This conclusion was based on the
addition of First United Bank (AFUB@), which purported to open a loan office and an insurance
office within the Shopping Center. First, plaintiff argues that FUB qualified as a Anational
occupant@ under Section 1.6(a)(i) because it is Adeemed retail@ and has more than 50 locations.
(#77 at 8). The court agrees with DSG that such an interpretation renders the word Anational@
meaningless. (#80 at page 5 of 12 in CM/ECF pagination). AIt is well settled that effect should
be given, if possible, to every word, phrase, clause and sentence of a contract.@ Cities Serv. Gas
Co. v. Kelly-Dempsey & Co., Inc., 111 F.2d 247, 249 (10th Cir.1940); see also 15 O.S. '157.
In the alternative, plaintiff argues that, even if FUB is considered a Aregional occupant,@
the leasing of its space satisfied the co-tenancy requirement. DSG does not dispute that FUB was
a regional tenant. (#87 at page 13 of 23 in CM/ECF pagination). DSG does assert FUB was not
a Aregional Occupant satisfactory to [DSG] in its sole discretion.@ (#80 at page 5 of 12 in CM/ECF
pagination). The court agrees with DSG and finds DSG=s exercise of discretion was reasonable,
as the evidence reflects that FUB=s offices were not Aopen . . . fully staffed, stocked and operated
by an Occupant in substantially all@ of their premises (as the Lease required) on October 28, 2017,
or at any time thereafter.

DSG cites evidence that the FUB offices did not meet these

requirements, and that the loan office and insurance office were not retail businesses. (#80 at
pages 3-4 of 12 in CM/ECF pagination). (See also #64, &&40-51 at pages 14-17 of 30 in CM/ECF
pagination; #87 at pages 12-13 of 23 in CM/ECF pagination).

8

Plaintiff=s attempt to dispute these facts is unpersuasive. For example, plaintiff makes a
legal argument that because FUB is a bank and therefore deemed retail pursuant to Section 1.4(a)
of the Lease, all of FUB=s activities are Aretail@ or Aincidental to retail.@ (#77 at 7). The court
finds this interpretation untenable. As defendant argues, A[u]nder 3RP=s proposed construction,
FUB could have opened a hotel, and it would have been deemed retail.@ (#87 at page 13 of 23 in
CM/ECF pagination). As to staffing, plaintiff argues that the Lease between 3RP and DSG
creates no duty for FUB. (#77 at 5). This is strictly true, but the requirements of the Lease
between the present litigants remain. Plaintiff also argues that FUB staffing could be delayed
under the Lease=s force majeure clause, an argument the court will address in due course. Plaintiff
states in conclusory fashion that A[t]he FUB location was fully staffed in October, leading into
November 2017.@ (#77 at 8). The court disagrees that this conclusion is supported by the cited
testimony.
The record also supports the conclusion that a number of other tenants did not meet the
requirements of Section 1.6. DSG states A[a]s DSG=s witnesses will testify, consistent with [the]
everyday meaning >regional tenant= is typically understood in the retail leasing industry to refer to
retailers that have a significant number or locations across a region of the United States, in more
than one state.@ (#87 at page 14 of 23 in CM/ECF pagination). Under this definition, Aat least
four tenants are local, rather than regional, and therefore not Required Tenants@ Id. (listing
tenants). 8 Plaintiff notes correctly that Aregional@ is not defined in the Lease, but does not offer

8 Plaintiff also contends that DSG is estopped from disapproving certain tenants, because
it failed to object to those tenants during the Alease-up@ period. Plaintiff asserts it relied on DSG=s
lack of objection. The court finds that, under the Lease, DSG had no obligation to object to any
particular tenant. Tenants who did not meet the definition of ARequired Tenant@ were not barred

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an argument that DSG=s interpretation is unreasonable.
Plaintiff argues that the parties to the lease had unequal bargaining power, but the court
finds this insufficiently supported by the record. 3RP was itself a sophisticated real estate entity
and was represented by experienced real estate counsel. During negotiations, several revisions to
the Lease were made for 3RP=s benefit. The Lease contained a clause whereby 3RP itself could
have exercised cancellation rights under certain circumstances. (Section 12.2(a)(i)).

The

provision that a Required Tenant shall mean (1) a national occupant or (2) a regional occupant
Asatisfactory to Tenant in its sole discretion@ was freely negotiated. Therefore, the court finds
DSG=s conduct in cancellation does not demonstrate unreasonableness or absence of good faith.
Accordingly, the court finds the right to terminate was valid under Oklahoma law, and properly
invoked under a reasonableness test. 9
Section 17.3 of the Lease contains a force majeure provision. Plaintiff claims that a

from becoming a tenant. The Lease merely required that a certain percentage of LFA be occupied
by ARequired Tenants.@ The evidence before the court does not establish the elements of equitable
estoppel under Oklahoma law. (#64 at pages 26-27 of 30 in CM/ECF pagination). In its
response (#77) to defendant=s motion, plaintiff does not address the estoppel argument.
9

The reasonableness of a party=s actions is typically a question of fact to be decided by the
fact-finder and is not generally appropriate for summary adjudication. See Concho Constr. Co.
v. Okla. Natural Gas Co., 201 F.2d 673, 675 (10th Cir.1953). Section 17.18 of the Lease, however,
is a waiver of jury trial. Where, as here, the parties file cross-motions for summary judgment, the
court is entitled to assume that no evidence needs to be considered other than that filed by the
parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts.
See Ultra Clean Holdings, Inc. v. TFG-California, L.P., 534 Fed.Appx. 776, 780 (10th Cir.2013).
While plaintiff has filed a motion for partial summary judgment, cross-motions exist as to the
reasonableness issue. In the context of cross-motions for summary judgment before a bench trial,
and under the evidence presented, the court finds the issue of reasonableness sufficiently clear in
this case to rule at the summary judgment stage.

10

May 19, 2017 tornado constituted a Force Majeure Event under the Lease. Again, the court rules
to the contrary. Section 17.3(b) requires prompt written notice no later than five business days
after the occurrence, including an estimation of its expected duration and probable impact on the
performance of obligations.
The record reflects that plaintiff did not provide such notice until September 21, 2017.
This is more than four months after the occurrence. The notice also did not provide the required
information. AThe failure to give proper notice is fatal to a defense based upon a force majeure
clause requiring notice.@

Sabine Corp. v. ONG Western, Inc., 725 F.Supp. 1157, 1168

(W.D.Okla.1989). Moreover, even assuming proper notice, plaintiff has not established a factual
question that the tornado prevented plaintiff from performing any obligation under the Lease.
(See #80 at pages 10-11 of 12 in CM/ECF pagination).
In conclusion, summary judgment in favor of defendant as to all issues is appropriate.
It is the order of the court that the motion of the plaintiff for partial summary judgment
(#49) is hereby denied. The motion of the defendant for summary judgment (#63) is hereby
granted. The motion in limine of defendant (#78) is deemed moot.
ORDERED this 12th day of FEBRUARY, 2019.

_________________________________
HONORABLE RONALD A. WHITE
UNITED STATES DISTRICT JUDGE
EASTERN DISTRICT OF OKLAHOMA

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