January 26, 2016 Practice Points

Lord & Taylor Awarded $31 Million in Maryland Mall Lawsuit

The luxury retail giant argued that a landlord breached a stipulation in its 40-year lease

by Howard K. Jeruchimowitz

In a recent verdict in Lord & Taylor, LLC et al. v. White Flint, L.P., et al. (Civil No. RWT-13-1912), a federal court jury in Maryland awarded Lord & Taylor $31 million for its claim that a landlord breached a 40-year-old lease by failing to operate a shopping center as an enclosed mall until Lord & Taylor’s lease terminated.

The relationship between Lord & Taylor and the landlord dates back to 1975, when the landlord, White Flint, agreed with Lord & Taylor’s and Bloomingdale’s predecessors to lease space adjacent to a shopping mall in Montgomery County, Maryland. Lord & Taylor and Bloomingdale’s agreed to serve as retail anchor tenants and White Flint agreed to construct and maintain a first-class high-fashion regional shopping center on the mall property. The parties memorialized this understanding in a reciprocal easement agreement (REA), wherein White Flint committed to continue operations of a three-story, enclosed mall on the site for the term of the leases. 

Pursuant to the REA, Lord & Taylor and White Flint agreed that the majority of the site would be used only for retail purposes, and that White Flint could build additional structures only with Lord & Taylor’s consent. In addition, any changes to the mall, including alterations to its architectural design or appearance, must also have been approved by Lord & Taylor. The REA provided that these restrictive covenants would run with the land at least until the termination of Lord & Taylor’s lease extension in 2042 and could be further extended until 2057 if Lord & Taylor chose to exercise its final lease-renewal option.

With the mall in decline, which included Bloomingdale’s and other tenants failure to renew their leases at the mall, White Flint released a sketch plan to redevelop the shopping center as part of Montgomery County’s sector plan to redevelop the surrounding area into a mixed-use, urban town center. Montgomery County approved the plan in October 2012. At the time of the lawsuit, Lord & Taylor was White Flint’s last remaining tenant in the mall. 

Lord & Taylor objected to the implementation of the sketch plan and the redevelopment of the Mall, without its consent, because the redevelopment violated the terms of the REA and because it would negatively impact the store’s business. In July 2013, Lord & Taylor filed a two-count complaint. In Count I, Lord & Taylor sought declaratory relief that the REA precludes White Flint from redeveloping the Mall as contemplated by the sketch plan and that it affirmatively requires White Flint to continue operation of a first class high fashion retail shopping center until 2042, at a minimum. In Count II, Lord & Taylor sought a permanent injunction to enjoin White Flint from taking any steps to carry out or construct the redevelopment in a manner inconsistent with the REA and affirmatively require White Flint to operate the mall as a first class high fashion regional retail shopping center.

The District Court granted White Flint’s motion for partial summary judgment on the claim for injunctive relief because, even if Lord & Taylor succeeded on the merits of their claim of breach of the REA, it would be infeasible enjoin White Flint from proceeding with the redevelopment  due to the advanced stage of the project and partial demolition of the buildings.  Lord & Taylor appealed, and the Fourth Circuit Court of Appeals agreed that an affirmative injunction would require too much court oversight and not be realistic based on the condition of the Mall. Lord & Taylor, LLC v. White Flint L.P., No. 13-2548 (Dkt. No. 57) (4th Cir. March 4, 2015). The Fourth Circuit also found that a negative injunction would freeze in place a vacant and partially demolished mall and create a blighted area. Id.

Lord & Taylor amended its complaint seeking counts for declaratory judgment, specific performance/injunction, breach of contract, interference with easements, fraud and unjust enrichment. In addition to the count for specific enforcement/injunction previously dismissed, the District Court dismissed the fraud count.

In July and August 2015, the case proceeded to a jury trial and the seven-member jury voted 6–1 in favor of Lord & Taylor and awarded it $31 million in damages, comprised of lost profits and the costs of renovating its store. White Flint has filed an appeal of the $31 million verdict claiming the jury should have been able to hear evidence on what Lord & Taylor stood to make on the redevelopment. Lord & Taylor intends to cross-appeal on the basis that the $31 million verdict should have been higher because the jury should have been able to consider the fraud claim as well as other damages regarding the loss of the value of the underlying property.

Howard K. Jeruchimowitz is a shareholder with Greenberg Traurig, LLP, in Chicago, Illinois.

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