Case Title: Downtown Barre Development v. C & S Wholesale Grocers, Inc.

Citation: 177 Vt. 70, 2004 VT 47, 857 A.2d 263

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2004-05-28T00:00:00Z

Document:
Downtown Barre Development v. C & S Wholesale Grocers, Inc. (2003-209); 
177 Vt. 70; 857 A.2d 263

2004 VT 47

[Filed 28-May-2004]
[Motion for Reargument Denied 28-Jul-2004]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 2004 VT 47

                                No. 2003-209

  Downtown Barre Development	                 Supreme Court

                                                 On Appeal from
       v.	                                 Washington Superior Court

  C & S Wholesale Grocers, Inc., 	         March Term, 2004
  GU Markets, LLC,
  GU Markets of Barre, LLC, and
  Maxi Drug, Inc., Intervenor

  Mary Miles Teachout, J.	

  Andrea L. Gallitano of Otterman and Allen, P.C., Barre, for
    Plaintiff-Appellee/Cross Appellant Downtown Barre Development.

  Leighton C. Detora of Valsangiacomo, Detora & McQuesten, P.C., Barre, for
    Appellees/Cross Defendants-Appellants C & S, et al.

  Robert S. DiPalma of Paul, Frank & Collins, P.C., Burlington, for
    Intervenor-Appellant Maxi   Drug, Inc.

  PRESENT:  Amestoy, C.J., Dooley, Johnson and Skoglund, JJ., and Allen, C.J.
            (Ret.),  Specially Assigned

        
       ¶  1.  SKOGLUND, J.   The principal issue in this case is whether
  the parties' commercial lease allows the current shopping plaza tenant to
  divide the subject premises and create two smaller retail establishments
  out of the space where the former tenant had operated a supermarket.  The
  owner of the shopping plaza, plaintiff Downtown Barre Development (DBD),
  filed suit in an attempt to stop intervenor Maxi Drug, Inc. from purchasing
  the former tenant's rights under the lease and commencing renovation work
  on its plan to divide the premises, set up a Brooks Pharmacy in part of the
  space where the former supermarket had stood, and sublet the remaining
  space to another retailer.  Based on its interpretation of the parties'
  lease, the superior court enjoined Maxi Drug and the former tenant from
  dividing the space and using it for any purpose other than as a supermarket
  or comparable store.  The court also assessed damages against Maxi Drug and
  the former tenant for violating the lease's implied covenant of good faith
  and fair dealing.  Maxi Drug, the former tenant, and DBD each appeal the
  court's decision.  We conclude that the lease does not preclude Maxi Drug
  from dividing the commercial space, establishing a Brooks Pharmacy in part
  of the space, and subletting the remaining space to another retail
  business.  Accordingly, we reverse the superior court's ruling and remand
  the matter for entry of judgment in favor of Maxi Drug with respect to
  DBD's complaint.
   
       ¶  2.  DBD is a limited partnership formed in 1973 for the purpose
  of developing and owning the shopping plaza that is at the center of this
  dispute.  DBD bought land, tore down old buildings, and began construction
  of the shopping center, which included a 26,000 square-foot store connected
  to smaller stores totaling about 16,000 square feet.  Before commencing
  construction, DBD lined up the commercial leases, including one with Grand
  Union, Inc. for the large store.  The Grand Union lease, which was signed
  on February 15, 1973, provided for a fixed-base rent, plus a percentage
  rent that was triggered at $10 million dollars in gross sales and capped at
  $14 million dollars in sales.  The lease was written for twenty years, with
  four five-year renewal periods.  A later amendment to the lease added two
  more five-year renewal periods.  The leases for the minor tenants provided
  for much shorter terms and regular consumer-price-index increases to the
  fixed rents.

       ¶  3.  Grand Union experienced significant financial difficulty during
  the 1990s, culminating in a bankruptcy liquidation proceeding in 2000.  DBD
  chose not to participate in that proceeding, in which C & S Wholesalers,
  Inc. purchased many of Grand Union's assets and created Grand Union Markets
  LLC (GUM) to hold them.  C & S then organized a separate limited liability
  corporation for each of the individual former Grand Union properties.  The
  corporation C & S established to operate the store at the center of this
  dispute was called Grand Union Markets of Barre LLC (GUMB).  In December
  2000, the bankruptcy court approved the transfer of the Grand Union lease
  to GUMB.  Throughout this period, the supermarket remained open for
  business.

       ¶  4.  Between the summer of 2001 and the summer of 2002, Maxi Drug
  separately contacted first DBD, and then C & S, about its interest in
  either purchasing the supermarket plaza or taking over the Grand Union
  lease.  On at least two different occasions, DBD declined Maxi Drug's offer
  to purchase the shopping plaza.  DBD expressed some interest in Maxi Drug's
  proposal to divide the Grand Union space and operate a Brooks Pharmacy in
  part of it, but DBD took the position that the existing lease could not be
  assigned, and that a new lease would have to be negotiated.  Ensuing
  negotiations between Maxi Drug and DBD broke down, but in August 2002 GUMB
  agreed to assign the Grand Union lease to Maxi Drug for $475,000, with a
  closing set for October 20, 2002.  Maxi Drug then resumed discussions with
  DBD concerning the terms of a replacement lease.  DBD reaffirmed its
  position that the existing lease could not be assigned and rejected Maxi
  Drug's proposal to divide the property.  On October 18, the Grand Union
  supermarket ceased operations.
   
       ¶  5.  On October 25, 2002, DBD filed a complaint against C & S,
  GUM, and GUMB, seeking declaratory and injunctive relief, as well as
  compensatory and punitive damages.  Four days later, on October 29, the
  closing was held on the assignment of the lease from GUMB to Maxi Drug. 
  That same day, a contractor acting on behalf of Maxi Drug obtained a
  building permit in DBD's name to commence renovation work on the Grand
  Union property.  Upon learning of the permit and proposed renovation, DBD
  sought a temporary restraining order.  Apparently, that request was denied
  on an ex parte basis because there was no indication that the work would
  begin before the parties had an opportunity for notice and a hearing.  At
  Maxi Drug's direction, renovation work began on November 6, 2002.  The
  inside of the supermarket was gutted.  The contractor intended to refit the
  space for two separate stores with separate electrical and heating systems,
  but the superior court temporarily halted the work on November 18.
   
       ¶  6.  On December 18, 2002, following two days of hearings, the
  superior court granted DBD's request for a preliminary injunction.  A final
  merits hearing was held over two days in February 2003, and the court
  issued its judgment on March 18, 2003.  The court concluded that the
  parties' lease entitled DBD to prohibit its tenant from dividing the Grand
  Union space and using it for purposes other than as a supermarket or other
  comparable anchor store.  While acknowledging that specific provisions of
  the lease unambiguously permitted any lawful use of the space, the court
  determined that the lease as a whole reasonably and necessarily implied a
  condition that the premises be operated as a single unified supermarket or
  comparable store.  The court also concluded that Maxi Drug and GUMB had
  violated the covenant of good faith and fair dealing implied in the lease
  by going ahead with renovation work without disclosing to DBD the extent of
  the work, even though they knew DBD was opposed to dividing the space.  The
  court assessed damages of only $1000 each against GUMB and Maxi Drug for
  this violation, however, stating that most of the litigation costs would
  have been incurred even absent the violation.  The court granted injunctive
  relief to DBD, but assessed no damages other than the $2000, concluding
  that DBD's request for damages was premature because Maxi Drug still had
  the opportunity to restore the premises to a condition that would not
  damage DBD.

       ¶  7.  On appeal, Maxi Drug argues that the superior court erred (1)
  by implying lease terms that are directly contradictory to the express
  terms contained in the unambiguous lease, and (2) by finding that Maxi Drug
  violated the covenant of good faith and fair dealing implied in the lease. 
  On cross-appeal, DBD argues that the court erred by not (1) requiring the
  tenants to restore the premises, (2) ruling that DBD was entitled to
  terminate the lease and eject Maxi Drug following GUMB's assignment of its
  interest in the property to Maxi Drug, and (3) awarding DBD compensatory
  damages for the cost of restoring the premises.  Also on cross-appeal, C &
  S , GUM, and GUMB argue that the court erred (1) by not dismissing C & S
  and GUM from the case, (2) by finding that GUMB was involved in the
  renovation of the premises, and (3) by concluding that GUMB breached the
  covenant of good faith and fair dealing implied in the lease.
   
       ¶  8.  The principal issue before us is whether the superior court
  erred by construing the lease to prohibit Maxi Drug from dividing the Grand
  Union space, setting up a Brooks Pharmacy in part of that space, and
  subletting the remaining space to another retailer.  We review de novo the
  trial court's determination as to whether the agreement is ambiguous, as
  well as its construction of the terms of the agreement.  See Creed v.
  Clogston, 2004 VT 34,  ¶ 6, 15 Vt. L. Wk. 138; Morrisseau v. Fayette, 164
  Vt. 358, 366,