Old Navy, LLC v. Center Developments Oreg., LLC
Filing
55
OPINION and ORDER: Granting Motion for Summary Judgment 23 ; Denying Motion for Summary Judgment 27 . See attached 21 page order. Signed on 6/13/2012 by Judge Garr M. King. (tll)
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
Civil Case No. 3:11-472-KI
OLDNAVY,LLC,
Plaintiff,
v.
CENTER DEVELOPMENTS OREG.,
LLC,
Defendant.
Robert C. Weaver, Jr.
Adam R. Kelly
Garvey Schubert Barer
Eleventh Floor
121 S.W. Monison Street
Portland, OR 97204-3141
Attorneys for Plaintiff
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OPINION AND ORDER
Dwain M. Clifford
Ball Janik LLP
101 SW Main St., Ste. 1100
P01iland, OR 97204-3219
Attomey for Defendant
KING, Judge:
Plaintiff Old Navy brings a claim for breach of contract and seeks a declaratory judgment
and attomey' s fees arising out of a dispute over language in a lease agreement ("Lease") between
itself and defendant landlord Center Development's Oreg., LLC ("CDO"). Pending before me
are cross-motions for summaty judgment. For the following reasons, I grant Old Navy's motion
and deny CDO's motion.
BACKGROUND
Old Navy claims that when "Key Store" GI Joe's closed in Cedar Hills Crossing (the
"Mall"), where an Old Navy store is located, the closure constituted a "Co-Tenancy Failure"
triggering Old Navy's right to pay a lower "Alternate Rent" rate. It also alleges CDO's failure to
inform Old Navy that the Key Store had closed, and to seek Old Navy's approval of New
Seasons as a substitute Key Store, constituted a breach of the Lease. Indeed, Old Navy alleges
that New Seasons, the substitute retailer CDO found to fill the available space, was not an
adequate substitute Key Store under the language of the Lease. Old Navy seeks return of
overpaid rent in the amount of$572,480.72, as well as attorney's fees.
CDO asserts the following affirmative defenses and counterclaims: that Old Navy
waived any right to declare a Co-Tenancy Failure or to pay Altemate Rent; that Old Navy is
estopped from declaring a Co-Tenancy failure or electing to pay Alternate Rent; and that the
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Altemate Rent remedy is an unenforceable penalty. It also seeks a declaratory judgment that Old
Navy was required to accept New Seasons and/or Powell's Books as a substitute Key Store,
pursuant to the Lease and the duty of good faith and fair dealing, and that there is no Co-Tenancy
Failure.
In February 2001, Old Navy's and CDO's predecessors entered into the commercial lease
at issue here for retail space at the Mall. Article 13.3 of the Lease 1 requires that "Best Buy and
two of the Additional Key Stores" be open for business. The Lease identifies Emporium, GI
Joe's, and Ross as "Additional Key Stores." Failure of a "Key Store" to be open as required
"shall be deemed a failure of the Operating Requirements and may sometimes be referred to as a
'Co-Tenancy Failure.' Landlord shall immediately notify Tenant of any Co-Tenancy Failure."
Art. 13.3(B). All notices (other than invoices) are directed to be sent to a specified address in
Califomia at "Attn: Real Estate Law." Art. 27.6(a).
The Lease allows CDO to substitute a Key Store with an appropriate replacement. The
provision reads:
If Landlord desires to substitute a retailer for one of the Key Stores ... Landlord
shall submit the name of such substitute retailer to Tenant for its prior written
approval. The approval of Tenant shall not be unreasonably withheld, delayed or
conditioned if: ( 1) the use to be conducted by such substitute retailer is
substantially the same as that conducted by the Key Store it is intended to
replace; (2) the merchandise sold by such substitute retailer is of equal or better
quality, and is offered at similar price points as the Key Store it is intended to
replace; (3) such substitute retailer will operate a retail business from substantially
all of the premises being vacated by the Key Store it is intended to replace; and
1
The Lease is attached as Exhibit 1 to the Complaint, as Exhibit 1 to the Nobach
Declaration in Support of CDO's Motion for Summmy Judgment, and as Exhibit 1 to the Nobach
Declaration in Support of CDO's Response to Old Navy's Motion for Summmy Judgment.
Page 3 - OPINION AND ORDER
(4) the net worth of the substitute retailer is equal to or greater than the net worth of the
then vacating Key Store measured as of one (1) year prior to such Key Store vacating the
premises.
Notwithstanding the above, any retailer shall be approved by Tenant if such
retailer is a retailer listed on Exhibit E, that operates its business in all or
substantially all of the space being vacated by a vacating Key Store.
Art. 13.5(A) (emphasis added). CDO points out that Exhibit E to the Lease contains a wide
range of retailers, such as Barnes & Noble, Border's Books, J.C. Penney, K-Mart, Office Depot,
Staples, Petco and Petsmart, Sears, Target and Wal-Mart. The latter two retail stores sell
groceries, among many other items.
Further, if the "Operating Requirements are not being met[,]" then Old Navy shall,
"effective immediately," have the right to pay an "Altemate Rent," as follows:
(2) Alternate Rent Remedy. Tenant may remain open for business and pay
monthly, as "Altemate Rent" during the period that the Operating Requirements
are not being met, in lieu of Minimum Rent, Percentage Rent and Other Charges,
an amount equal to the lesser of: (a) two percent (2%) of all Gross Sales made in
the Premises for each month (or portion thereof) during such period, or (b) the
amount of Minimum Rent then applicable ....
Art. 13.4(A). Alternatively, the "Right to Close Remedy" allows Old Navy to close its doors, but
continue paying rent, until it decides to reopen. Finally, the "Termination Remedy" allows Old
Navy to forever terminate the Lease if the "Operating Requirements" are not met for more than
nine months. Ali. 13.4(A)-(C).
At·ound 2003, Key Store Emporium closed. On August 16, 2005, Key Store Ross moved
to the Emporium location. On or around November 17, 2006, Powell's Books opened a store;
Powell's is not a pre-approved substitute for a Key Store and it does not operate in substantially
all of the retail space previously occupied by a Key Store. Additionally, sometime in 2006, New
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Seasons opened in the space Ross had vacated; it is also not a pre-approved substitute Key Store.
CDO did not request Old Navy's approval ofNew Seasons as a substitute Key Store at that time.
The Lease provisions, requiring Best Buy and two additional Key Stores, were being met
until May 30, 2009 when GI Joe's closed. CDO believed the previously opened New Seasons
met the substitute Key Store conditions. Spmis Authority, listed as a pre-approved substitute on
Exhibit E, opened in the fmmer GI Joe's location, but not until May 6, 2011. Accordingly,
between May 30,2009 and May 5, 2011, a "Co-Tenancy Failure" occurred unless New Seasons
was an appropriate substitute Key Store. 2
Old Navy discovered GI Joe's closure on September 30, 2010 as pati of a routine audit of
its leases perfmmed by its Landlord Audit depmiment. It ale1ied CDO that it was entitled to pay
Altemate Rent during the time GI Joe's was closed and until a substitute Key Store opened in the
Mall, and it demanded a refund of excess rent paid since May 30, 2009. In November 23,2010
CDO offered New Seasons as a substitute Key Store, but Old Navy rejected it because New
Seasons did not meet the requirements of Article 13.5. Old Navy does not view New Seasons as
an appropriate substitute Key Store because it is a grocery store, and not a juvenile clothing store
like Ross. CDO reports it never considered that Old Navy would not accept New Seasons as a
valid substitute for the space Ross had vacated.
In November 2010, Old Navy paid the Altemate Rent it believed it was entitled to pay,
but CDO declared Old Navy in default of the lease. Old Navy thereafter paid full monthly rent
under protest.
2
Although CDO initially asserted in its answer that Powell's Books was an appropriate
substitute, it has since conceded it was not.
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The Landlord Audit department at Gap, Inc., Old Navy's parent company, is charged with
monitoring landlord compliance with Leases. No other employee or department is responsible
for monitoring or ensuring compliance with Leases. Ravel Dec!.
~
4.
Old Navy paid $24,548.22 per month in rent. The Altemate Rent was about a third or
less of the usual monthly rent. CDO notes that Old Navy renewed its lease-for another five
years-in November 2010, while the GI Joe's space was still empty.
LEGAL STANDARDS
Summary judgment is appropriate when there is no genuine dispute as to any material fact
and the moving pmty is entitled to a judgment as a matter oflaw. Fed. R. Civ. P. 56(a). The
initial burden is on the moving party to point out the absence of any genuine issue of material
fact. Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate
through the production of probative evidence that there remains an issue of fact to be tried.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the
court "must view the evidence on summmy judgment in the light most favorable to the
non-moving pmty and draw all reasonable inferences in favor of that party." Nicholson v.
Hyannis Air Service. Inc., 580 F.3d 1116, 1122 n.1 (9'h Cir. 2009) (citation omitted).
DISCUSSION
I.
Objections to Evidence
In support of its own motion for summary judgment, and in response to Old Navy's
motion, CDO relies on evidence and testimony propounded by Robett LeFeber. Old Navy
objects to many of the statements LeFeber makes, arguing they are inelevant to a dispute that is
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predominately a legal one. Since I find the Lease provisions to be clear and unambiguous, I do
not rely on any evidence or testimony of LeFeber.
Additionally, Old Navy objects to several of CDO's factual assertions. Again, I agree
that reports about renovations, the desirability of a tenant like New Seasons, or reasons Key
Stores closed have no bearing on the legal questions facing me.
Finally, Old Navy objects to Stephen Nobach's declaration filed in support of CDO's
response to Old's Navy's motion for summary judgment as inadmissible parole evidence. Again,
since I find the Lease provisions to be clear and unambiguous, I do not refer to this declaration.
Old Navy's counsel did not confer with CDO before filing Old Navy's objections, and
did not include a statement in the first paragraph of his brief ce1iizying his good faith efforts to
resolve the dispute, as required by LR 56-l(b), LR 7-l(a). In the interest of deciding these
motions quickly, and recognizing that the rules were recently amended to clarifY a confenal
requirement in the context of evidentiary objections, I forgive Old Navy's noncompliance with
the rule. Old Navy's counsel also reports that he discussed the objections with CDO's counsel
after he leamed of the confenal requirement.
CDO, in turn, filed objections to the declarations of David Matthews and Jason
Rosenzweig tiled in support of Old Navy's opposition to CDO's motion for summary judgment.
CDO asserts the declarations contain untimely expe1i testimony. Both declarations respond to an
argument CDO makes that I need not address. As a result, the objections are denied as moot.
II.
Old Navv's Motion for Summary Judgment on its Own Claims
Old Navy argues that when Key Store GI Joe's closed in the Mall, the closure constituted
a "Co-Tenancy Failure" triggering Old Navy's right to pay a lower "Alternate Rent" rate. It also
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alleges CDO failed to inform Old Navy that the key stores had closed, constituting a breach of
the contract.
A.
Whether there was a Co-Tenancy Failure from May 30. 2009 through
May 5. 2011
Old Navy argues that the unambiguous provisions of the Lease required that Best Buy and
at least two Additional Key Stores be open for business in order to make Old Navy responsible
for payment of the full rent. Old Navy argues it is "undisputed that, as of May 30,2009 and
continuing until the opening of Sports Authority on May 6, 2011, the only Key Stores open for
business at the Mall were Best Buy and Ross." Old Navy's Mem. in Supp. ofSumm. J. 15. As a
result, there was a Co-Tenancy Failure triggering its right to pay Alternate Rent.
CDO jumps straight to the language of the Lease directing the process for approving
substitute Key Stores. The question it poses is whether New Seasons, which filled the space
Ross left, should be considered a Key Store, thereby curing any Co-Tenancy Failure. CDO
argues there is a genuine issue of fact about whether New Seasons meets the conditions to be
considered a substitute Key Store.
The provision central to evaluating whether a retailer is an appropriate substitute Key
Store reads in part as follows,
The approval of Tenant shall not be umeasonably withheld, delayed or
conditioned if: (1) the use to be conducted by such substitute retailer is
substantially the same as that conducted by the Key Store it is intended to
replace; (2) the merchandise sold by such substitute retailer is of equal or better
quality, and is offered at similar price points as the Key Store it is intended to
replace; [and two conditions that no one disputes are met].
Art.13.5(A).
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Under Oregon law, the interpretation of a contract is a question of law for the court.
Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464,469,836 P.2d 703 (1992). 3 The
court's goal is to give effect to the intention of the contracting parties. Anderson v. Jensen
Racing. Inc., 324 Or. 570,575-76,931 P.2d 763 (1997); ORS 42.240 (in the construction of a
written instmment the intention of the parties is to be pursued if possible).
A contract or tetm is unambiguous if it has only one sensible and reasonable
interpretation. D&D Co. v. Kaufman, 139 Or. App. 459,462, 912 P.2d 411 (1996). For a
contract or term to be legally ambiguous, it must be susceptible to at least two plausible
interpretations when examined in the context of the contract as a whole. Moon v. Moon, 140 Or.
App. 402, 407, 914 P.2d 1133 (1996). In the event of an ambiguity, the Court may consider
extrinsic evidence of intent. Yogman v. Parrott, 325 Or. 358,361, 937 P.2d 1019 (1997).
CDO implies that the language "substantially the same" "use" is ambiguous. It does so
without offering a plausible interpretation contrmy to Old Navy's from which I could then make
a finding of ambiguity. Rather, it suggests that: (1) the list of stores on Exhibit E inf01m the
meaning of Article 13.5(A); (2) the provision simply requires that the use of space be retail and
comparable in size and scope; and (3) Old Navy's interpretation ignores the purpose of the
provision.
CDO first asks that I read Exhibit E in conjunction with Article 13.5(A), suggesting that
because Exhibit E contains a variety of stores Old Navy pre-approved as substitute Key
Stores-including a variety of book stores, pet stores, and stores carrying groceries and other
items-the conditions articulated at Article 13.5(A) should be read with leniency to include a store
3
The Lease makes Oregon law the governing law. Ati. 27.10.
Page 9 - OPINION Al'lD ORDER
like New Seasons. I disagree with CDO's interpretation. The Lease identifies two ways a
retailer may qualify as a substitute Key Store; either the substitute retailer meets the nanow and
clear criteria set forth in Atticle 13.5(A) or the substitute retailer is listed on Exhibit E. Simply
because Old Navy pre-approved Target, a store CDO asset1s sells groceries, among other items,
does not mean Old Navy is required to accept a grocety store for the space Ross vacated.
Instead, under the language of the Lease, Old Navy is entitled to notice and the right to evaluate
whether a new tenant is an appropriate substitute under the criteria set f011h in Atticle 13.5(A).
Indeed, Exhibit E is introduced by the words "Notwithstanding the above ... "making it apparent
that the stores identified in Exhibit E do not necessarily meet the narrow criteria set forth in
Atticle 13 .5(A). 4
I also reject CDO's argument that New Seasons' "use" of space is "substantially the
same" as Ross's use of the space simply because New Seasons is using the space for retail use.
The language of Atticle 13.5(A) calls for a tenant to be a "retailer," making "substantially the
same" "use" of the space mean something more than that it be a retail use. As a result, I find
unpersuasive CDO's argument that a reasonable juror could find New Seasons' use to be similar
enough to satisfy the requirements of the Lease.
CDO finally suggests that Old Navy's interpretation ignores the purpose of the clause
and the intention of the parties-to protect Old Navy from lost business, not to give it a windfall.
However, the Lease provisions are intended to give Old Navy the oppottunity to evaluate a new
tenant to confirm that it is an acceptable substitute retailer. In this case, New Seasons is a
4
The fact that Circuit City became an online-only retailer after the patties entered the
Lease does not inf01m the meaning of the substitute Key Store provision.
Page 10- OPINION AND ORDER
grocery store and Ross is a discount, junior department store selling apparel, accessories, and
shoes. As a result, New Seasons is neither engaged in substantially the same use of the space as
Ross was, nor is it selling a similar type of merchandise that can be compared by quality and
price point. Nothing in the language of the provision directs an interpretation requiring Old Navy
to accept a retailer simply because it brings in traffic. Instead, the provision identifies specific
conditions that are not met by New Seasons.
Since I find that New Seasons was not an appropriate substitute retailer, Old Navy is
entitled to summary judgment on its claim that CDO engaged in a Co-Tenancy Failure. Its
remedy under the Lease is the right to pay Alternate Rent. Accordingly, it is entitled to
reimbursement of excess rent in the amount of $572,480.72, plus interest.
B.
Use of Altemate Rent Remedy
CDO suggests that Old Navy is improperly reading the Alternate Rent Remedy. The
language allows Old Navy, to pay "Alternate Rent" "effective immediately" if the "Operating
Requirements are not being met[.]" Ati. 13.4(A)(2). CDO argues that the "effective
immediately" language means Old Navy may pay reduced rent going forward from the date it
made the decision to elect to pay Alternate Rent, but it does not permit Old Navy to retroactively
demand Alternate Rent. CDO contends Old Navy knew about GI Joe's closure, was sitting on its
hands and allowing CDO to collect excess rent, and is just now demanding a windfall.
CDO has not produced evidence demonstrating anyone responsible for this Lease knew
about GI Joe's closure and its effect on the Operating Requirements of the Lease before Old
Navy's Landlord Audit department itselfundetiook an audit of the Operating Requirements at
the Mall. CDO points to two documents, an internal report from 2009 noting the "[r]ecent
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vacancy by GI Joes" and a 2009 letter about property-tax paying tenants. Clifford Decl. in Supp.
of CDO's Resp. to Old Navy's Mot. for Summ. J. Exs. 112 (filed under seal) and 111. With
respect to the internal rep011, it is true Old Navy's Real Estate Manager admitted that the internal
report would have been available to Old Navy's finance, real estate, and store design groups in its
discussion of specific locations, including the Mall, as part of its market-planning meetings. Id.
at Ex. 125, Rosenzweig Tr. 66:15-19 (filed under seal). However, CDO cannot identify who
made the comment in the internal rep011, what the scope of the person's duties were, whether
anyone who reviewed the repo11 was aware of the Operating Requirements, or whether anyone
even discussed the rep011 or the Operating Requirements at any of those group meetings. Instead,
the only evidence is that the Landlord Audit department had never seen the report and did not
have access to it or repmts of its kind. Supp. Kelly Dec!. Ex. 5, Ravel Dep. 68:2-69:6, 70:15-25
(filed under seal).
The tax payments letter is even less persuasive. It was not sent to the Real Estate Law
depmtment in CA. The letter simply lists tenants which paid taxes, omitting GI Joe's when the
previous year's letter had listed the company, and it does not say GI Joe's is no longer operating.
Fmther, no one received the letter in the Landlord Audit department. Id. at Ex. 4, Ravel Dep.
62:4-63:7.
Without the right department getting word of the store closures, Old Navy could not
evaluate the meaning of a store's closure in reference to the Lease's terms. Old Navy had no way
of knowing that a Co-Tenancy Failure existed without notice from CDO, and Old Navy relied on
the express contractual tetm requiring CDO to provide that notice.
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Since Old Navy did not know about GI Joe's closure and its effect on the Operating
Requirements under the Lease, Old Navy's remedies are not limited by language in the Lease
entitling it to Altemate Rent "effective immediately." As soon as it learned of the Co-Tenancy
Failure, Old Navy alerted CDO of its right to pay Altemate Rent.
C.
Whether CDO Breached the Lease by Failing to NotifY Old Nayy of the CoTenancy Failure
The Lease clearly requires CDO to "immediately" and "promptly" notifY Old Navy of a
Co-Tenancy Failure. Art. 13.3(B). Atiicle 27.6(A) requires that notice of this nature be
delivered in writing to its legal notice address, care of Gap Inc.'s Real Estate Law depmiment
and that "no notice to [Old Navy] shall be effective unless it is addressed to the attention of Real
Estate Law .... "
CDO admits it did not provide written notice to Old Navy pursuant to this provision.
Kelly Dec!. in Supp. of Old Navy's Mot. for Summ. J. Ex. 7 (CDO's Resp. to Old Navy's First
Set of Requests for Admission). CDO also admits that Old Navy is "correct" that CDO did not
ask for Old Navy's permission to substitute New Seasons as a Key Store, despite the fact that the
Lease requires CDO to obtain Old Navy's approval. CDO's Resp. to Old Navy's Mot. for
Summ. J. 16. Nevetiheless, it argues that because New Seasons was an acceptable substitute, its
failure to alert Old Navy of GI Joe's closure was not a material breach. I have already rejected
CDO's argument that New Seasons was an acceptable substitute.
CDO resotis to a good faith and fair dealing argument as a way to defend its own failure
to give notice. I have separately dealt with that argument in reference to CDO's counterclaims
below. CDO fails to raise a genuine issue of fact suggesting Old Navy's Real Estate depmiment
Page 13 - OPINION AND ORDER
received notice of GI Joe's closure. As a result, Old Navy is entitled to summmy judgment on its
breach of contract claim.
D.
Attorney's Fees and Costs
Old Navy seeks summary judgment on its claim for attorney's fees. The prevailing party
is entitled to "costs of suit and reasonable attomey' s fees" in any action brought to enforce or
interpret the Lease. Art. 27.11. Old Navy is entitled to attorney's fees as the prevailing party.
II.
Old Navv's Motion for Summary Judgment on CDO's Counterclaims
A.
Whether New Seasons and Powell's Books are Valid Substitute Key Stores
Old Navy moves for summary judgment on this counterclaim. CDO responds that New
Seasons was a valid substitute Key Store; it no longer argues that Powell's Books was an
appropriate substitute Key Store.
Since I have found in Old Navy's favor that Old Navy could properly reject New Seasons
as a substitute Key Store under the language of the Lease, I dismiss the counterclaim with
prejudice.
B.
Whether Sports Authoritv is a Valid Substitute Key Store
Old Navy agrees that Spotts Authority is a valid substitute Key Store that replaced GI
Joe's and cured the Co-Tenancy Failure as of May 6, 2011. This counterclaim is dismissed as
moot.
C.
Whether Old Nayy Breached its Obligations to Accept New Seasons and/or
Powell's
CDO counterclaims for a declaration that Old Navy breached its obligations under the
Lease and under its duty of good faith and fair dealing in refusing to accept New Seasons and/or
Page 14- OPINION AND ORDER
Powell's as substitute Key Stores. CDO has abandoned its argument that Powell's was an
appropriate substitute Key Store. Accordingly, I evaluate only CDO' s assertion that, by
rejecting New Seasons as a substitute Key Store, Old Navy did not exercise in good faith its
rights under the Lease.
CDO asse1is that Old Navy was obligated under the Lease language and the duty of good
faith and fair dealing to accept New Seasons. "A contract that necessitates the exercise of
discretion certainly implicates the duty of good faith." McKenzie v. Pac. Health & Life Ins. Co.,
118 Or. App. 377, 847 P.2d 879 (1993). Here, CDO points out, the Lease directs that Old
Navy's "approval ... shall not be umeasonably withheld, delayed, or conditioned" if the
substitute retailer satisfies the Key Store requirements. Art. 13.5(A). CDO compares this
situation to Chiles v. Robertson, in which the court was faced with lease assignments. The comi
found that where an assigmnent clause contained a reasonableness condition, the lessor could not
deny its consent when the lessor's risks were not significantly increased "and there was therefore
no financial basis for it to refuse consent." 94 Or. App. 604, 646-47, 767 P .2d 903 (1989),
modified on recons. on other grounds, 96 Or. App. 658, 774 P.2d 500 (1989). CDO contends
that New Seasons brings far more potential customers to the Mall than did the Emporium, for
example.
The duty of good faith and fair dealing "is to be applied in a manner that will effectuate
the reasonable contractual expectations of the parties. But it is only the objectively reasonable
expectations of the parties that will be examined in determining whether the obligation of good
faith has been met." Uptown Heights Assoc. Ltd. P'ship v. Seafirst Com., 320 Or. 638, 645, 891
Page 15- OPINION AND ORDER
P.2d 639 (1995) (intemal citations and quotations omitted). Indeed, the duty cannot "vmy the
substantive terms of the bargain[.]" Id.
Requiring Old Navy to accept New Seasons as a replacement for Ross, where the "use to
be conducted" by New Seasons is not "substantially the same as that conducted" by Ross, and
where the "merchandise sold by" New Seasons is not of "equal or better quality, and ... offered
at similar price points" as Ross, would "vary the substantive te1ms" of the Lease. The case CDO
relies on is not persuasive where the right to assign was not conditioned on any criteria such as
specifically set out in the Lease here. Chiles, 94 Or. App. at 629 (some leases at issue contained
provisions like "Lessor shall not unreasonably withhold its consent to any assignment to any
responsible or reputable person, fi1m or organization").
Old Navy was within its contractual rights to withhold its approval of New Seasons as a
substitute Key Store. As a result, CDO's counterclaim is dismissed with prejudice.
D.
Whether Old Nayy Waived its Rights or is Estopped
CDO alleges in its counterclaim that Old Navy waived its rights under Article 13 of the
Lease, and is estopped from declaring a Co-Tenancy Failure.
Again, Old Navy is entitled to summmy judgment on these counterclaims because CDO
has failed to raise a genuine issue of material fact suggesting Old Navy knew about GI Joe's
closure, and the effect of that closure on the Operating Requirements of the Lease at the Mall,
prior to its 2010 audit. Specifically, with respect to waiver, Old Navy did not intentionally
relinquish a known right because CDO never notified Old Navy ofGI Joe's closure and the need
to evaluate New Seasons as a substitute Key Store. See Wright Schuchart Harbor v. Johnson,
133 Or. App. 680, 685-86, 893 P.2d 560 (1995) (waiver is "intentional and voluntmy
Page 16- OPINION AND ORDER
commitment to forgo some right"). As a result, Old Navy's inaction cannot constitute
unequivocal relinquishment of its right to Alternate Rent.
CDO also fails to make out the elements of its estoppel counterclaim. The elements of
estoppel are: (1) Old Navy made a false representation; (2) it made the statement with
knowledge of the facts; (3) CDO was ignorant of the truth; (4) Old Navy made the statement with
the intention that the statement should be acted upon by CDO; and (5) CDO was induced to act
upon the statement. Herman v. Valley Ins. Co., 145 Or. App. 124, 133-34, 928 P.2d 985 (1996).
There must be justifiable and reasonable reliance by the party seeking to invoke estoppel. Id. at
134.
CDO' s estoppel theory is grounded on its contention that a material issue of fact exists
about when Old Navy learned of GI Joe's closure. I have already concluded that it has failed to
meet its burden on the notice issue. CDO concedes it never notified the Real Estate Law
depatiment. The evidence CDO points to as indicative of notice does not suggest anyone at Old
Navy who was responsible for this Lease knew about GI Joe's closure. As a result, no reasonable
juror could conclude that Old Navy knew about the closure, that CDO did not know about the
closure and its effect on the Operating Requirements, that Old Navy failed to act in order to
induce CDO to refrain from curing the Co-Tenancy Failure, and that CDO reasonably relied on
Old Navy's failure to act.
These counterclaims are dismissed with prejudice.
E.
Whether There is a Co-Tenancy Failure
Again, Old Navy moves for summary judgment on CDO's counterclaim that there was no
Page 17 - OPINION AND ORDER
Co-Tenancy Failure. Since New Seasons was not a substitute Key Store, this counterclaim is
dismissed with prejudice.
F.
Whether Old Nayy has not Paid, and CDO has not Accepted, "Excess" Rent
This counterclaim is based on whether a Co-Tenancy Failure existed and whether Old
Navy is entitled to a reimbursement of the excess rent it paid pursuant to the Alternate Rent
Remedy in the Lease. Since I have found a Co-Tenancy Failure existed and that Old Navy is
entitled to reimbursement of its excess rent, this counterclaim is dismissed with prejudice.
G.
Attorney's Fees and Costs
The prevailing party is entitled to "costs of suit and reasonable attorney's fees" in any
action brought to enforce or interpret the Lease. Art. 27.11. Since I have found in Old Navy's
favor, it is the "prevailing party" and this counterclaim is dismissed with prejudice.
.!I.
CDO's Motion for Summmy Judgment on its Counterclaim that the Alternate
Rent Remedy is Unenforceable
CDO moves for summmy judgment on its counterclaim that the Altemate Rent Remedy
is an unenforceable liquidated damages provision. This is a legal dete1mination that is
appropriate for summmy judgment. Kesterson v. Juhl, 157 Or. App. 544, 548, 970 P.2d 681
(1998). Courts unde1iake a two-step inquily in evaluating whether a provision awards
unenforceable liquidated damages. The comi first dete1mines whether the disputed clause
actually is a liquidated damages clause, defined as "words of a contract that set the amount of
damages to be recovered by one pmiy from another in case of the latter's failure to perform as
agreed." Id.
Page 18- OPINION AND ORDER
Next, the court determines if it is an unlawful penalty by considering the factors in
ORS 72.7180(1):
Damages for breach by either party may be liquidated in the agreement but
only at an amount which is reasonable in the light of the anticipated or actual
harm caused by the breach, the difficulties of proof of loss, and the inconvenience
or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing
umeasonably large liquidated damages is void as a penalty.
A liquidated damages clause is not a clause that requires payment "when a contract term
has been satisfied." Kesterson, 157 Or. App. at 548. In other words, a clause that requires
payment as a "consequence of the occurrence of a contract term" does not qualify as a liquidated
damages provision. Id.
CDO, focusing on the Kesterson language, argues that Old Navy is not alleging any
provision of the Lease has been satisfied. Instead, CDO reports, Old Navy is arguing CDO
breached the Lease in failing to maintain the "Operating Requirements" of the Lease, causing a
"Co-Tenancy Failure" and entitling Old Navy to "Operating Requirement Remedies." The
Alternate Rent Remedy, one of the Operating Requirement Remedies, provides for the "remedy"
should the Lease be breached.
As an initial matter, Old Navy underscores that its breach of contract claim is not based
on the occull'ence of the Co-Tenancy Failure. Rather, the breach of contract claim is based on
CDO's failure to notify Old Navy of GI Joe's closure and its reji1sal to reimburse Old Navy for
the excess rent.
I conclude that the Alternate Rent Remedy is not a liquidated damages provision. The
Altemate Rent Remedy is only triggered "[i]fthe Operating Requirements are not being met."
Art. 13.4(A)(2). A close reading of the "Operating Requirements" reveals that the provision does
Page 19- OPINION AND ORDER
not impose any requirements on CDO; rather, it identifies the conditions necessary for CDO to
require Old Navy to operate in the Mall. Specifically, Old Navy "shall not be required to open"
its store unless Best Buy and two additional Key Stores me also open for business. Art. 13.3.
CDO suggests that the provision imposes a requirement on the landlord to keep certain tenants at
the Mall. But the Lease does not require CDO to keep Key Stores at the Mall, and CDO does
not promise to keep Key Stores at the Mall. Indeed, Article 13.5(b) provides that Old Navy's
consent to a substitute Key Store is "not intended to restrict the freedom of Landlord to enter into
leases or operating agreements with any pmiy with whom Landlord desires in the exercise of its
sole and absolute discretion."
If the conditions for operating the Old Navy store at the Mall are not met, Old Navy may
choose to close its store and continue paying rent or it may choose to pay Alternate Rent-thus,
invoking a tiered rent structure. In other words, Article 13.4 does not provide for damages if
CDO fails to keep cettain tenants at the Mall. If CDO leases to an entity that does not qualify as
a Key Store, it is not in breach or default of the Lease and it does not owe Old Navy any
damages. Rather, it must notify Old Navy of the Key Store closure, thereby triggering Old
Navy's right to either pay Altemate Rent or close its store and pay Minimum Rent.
It is true that if the Operating Requirements are not met for a period of nine months, Old
Navy has the right to terminate the Lease with 30 days' written notice to CDO. Again, however,
this is not a remedy for any breach ofCDO's obligations-Old Navy may not terminate the Lease
on the spot.
Because I have concluded that the Altemate Rent Remedy is not a liquidated damages
provision, but is instead a tiered rent structure, I need not analyze whether the Alternate Rent
Page 20 - OPINION AND ORDER
Remedy bears any relationship to Old Navy's anticipated or actual damages. CDO's Motion for
Summary Judgment is denied on its counterclaim, and Old Navy's motion is granted.
Accordingly, CDO 's counterclaim on the Alternative Rent Remedy as an unlawful liquidated
damages clause is dismissed with prejudice.
CONCLUSION
For the foregoing reasons, I grant Old Navy's Motion for Summary Judgment [23] and
deny CDO's Motion for Summmy Judgment [27]. Old Navy is awarded judgment in the amount
of $572,480.72, plus interest and attorney's fees. CDO's affirmative defenses and counterclaims
are dismissed with prejudice.
The parties are directed to confer about the amount of Old Navy's attorney's fees and
costs and submit a proposed order within 14 days. If the parties are unable to agree, Old Navy's
shall submit a motion for attorney's fees and costs within 14 days and CDO shall file a response
within 7 days.
IT IS SO ORDERED.
DATED this
6~"~y of1une, 2012.
a!TM. King
United States District Judge
Page 21- OPINION AND ORDER
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