Court Opinion

ID: 4351275
Source: CourtListenerOpinion
Date Created: 2018-12-17 19:56:55.124552+00
Date Added: 2024-06-11T14:34:55.411103
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                              DIVISION ONE

BELLEVUE SQUARE, LLC, a            )            No. 77770-0-1
Washington limited liability company,
                                   )
                                   )
                       Respondent, )                                                IV         r)
                                                                                    or)_
                                   )                                                —
                                                                                    co )
                v.                 )                                                0
                                                                                    rt     i
                                   )            PUBLISHED OPINION                   n           •_
                                                                                    _             1
WHOLE FOODS MARKET PACIFIC         )                                                •--I
NORTHWEST, INC., a Delaware        )
corporation; WHOLE FOODS MARKET,)
INC., a Texas corporation;         )
                                   )
                       Appellants  )            FILED: December 17, 2018

      SCHINDLER, J. — On July 23, 2015, Bellevue Square LLC executed a 20-year

lease with Whole Foods Market Inc. to operate a "365 by Whole Foods" store. Whole

Foods closed the store and vacated the premises on October 14, 2017. Bellevue

Square filed a lawsuit against Whole Foods Based on a lease provision containing an

"operating covenant," Bellevue Square sought a mandatory preliminary injunction

requiring Whole Foods to reopen and continue operating the store. The trial court

granted the motion for a preliminary injunction and ordered Whole Foods to reopen the

store within 14 days. We granted discretionary review and stayed the preliminary

injunction. Because Bellevue Square has only a limited legal right to specific

performance under the terms of the lease that is unrelated to the operating covenant
No. 77770-0-1/2

and the lease gives Bellevue Square a plain, complete, speedy, and adequate remedy

at law, we reverse and remand.

                                             FACTS

       Bellevue Square LLC is a shopping mall developed and managed by Kemper

Development Company with 1.3 million square feet of retail space. In 2013, there were

three anchor tenants: Nordstrom occupied 266,708 square feet, Macy's occupied

218,371 square feet, and JCPenney occupied three floors or approximately 200,000

square feet.

       In late 2013, JCPenney notified Bellevue Square it planned to vacate the

following year. A vice president of leasing contacted Whole Foods Market Inc. about

leasing a portion of the space. Whole Foods expressed interest in leasing the ground

floor space, approximately 34,000 square feet. Whole Foods decided to open a "365"

concept store at the mall. The 365 concept offers lower-price Whole Foods products

and operates with fewer employees. The Whole Foods 365 store at Bellevue Square

would be the only 365 store located in a mall.

       Bellevue Square and Whole Foodsl executed a lease on July 23, 2015. The

lease term is 20 years with four 5-year optional extensions. The lease provides for

annual base rent with regular increases according to a set schedule and if gross sales

exceed a set amount, the lease requires Whole Foods to pay percentage rent at a rate

of two percent of gross sales during each calendar year. The lease contains an

"operating covenant" that requires Whole Foods "to conduct and carry on" its business

"without interruption" for the first 10 years of the lease and sets minimum business

        1 Whole Foods Market Pacific Northwest Inc executed the lease as the tenant Whole Foods
Market Inc guaranteed the obligations of the tenant
                                                2
No. 77770-0-1/3

hours. The lease defines a default and the remedies available to the tenant and the

landlord in case of breach.

       Whole Foods opened its 365 store in the Bellevue Square space on September

14, 2016. On October 14, 2017, Whole Foods closed the 365 store, sold its inventory,

and offered the 56 employees jobs at other stores.

       On October 24, Bellevue Square filed a lawsuit against Whole Foods alleging

breach of the lease and the guarantee for the lease obligations. Bellevue Square

alleged Whole Foods breached the operating covenant of the lease and sought

injunctive relief and damages.

       On November 15, 2017, Bellevue Square filed a motion for a preliminary

injunction to compel Whole Foods to "promptly reopen" at Bellevue Square. Bellevue

Square argued it had a clear legal and equitable right under the operating covenant of

the lease, section 7.2(b), to require Whole Foods to continue operations and the store

closure violated the terms of the lease, resulting in actual and substantial injury. Retail

shopping center expert John Talbott and finance economics expert Jarrad Harford

submitted declarations in support of the injunction.

       Talbott stated that by vacating the premises, Whole Foods disrupted the stability

of the shopping center, affected negotiations with potential and current tenants, reduced

customer traffic, prevented Bellevue Square from recovering percentage rent, and

impacted Bellevue Square's reputation. Harford cites the harms Talbott described and

concludes on a more probable than not basis that few of the harms could be quantified

with any degree of certainty.

                                             3
No. 77770-0-1/4

       Whole Foods conceded it vacated the premises but asserted that under the

terms of the lease, the available remedy for the breach was damages. Whole Foods

argued the lease did not give Bellevue Square the clear legal right to specific

performance of the operating covenant in section 7 2(b). Whole Foods pointed to

section 10.1(a) of the lease that allows Bellevue Square to pursue the remedies

available under the lease if Whole Foods vacates the premises, section 10.1(c)(1) that

imposes a duty to mitigate damages and requires Bellevue Square to attempt to find

another tenant in the event of a default, and section 10.1(c)(iv) that precludes Bellevue

Square from recovering consequential damages resulting from Whole Foods' default.

Whole Foods argued that interpreting the lease to permit Bellevue Square to compel it

to continue operating the store as a remedy for a breach is inconsistent with those

provisions of the lease.

      The court granted Bellevue Square's motion for a preliminary injunction and

ordered Whole Foods to reopen for business at Bellevue Square effective 14 days from

the date of the order. The findings state the lease contains an "express 'Operating

Covenant'"and "imposes a duty on Whole Foods to be open and operational for at

least the first 10 years of the 20-year Lease term." The court rejected the argument that

the duty of Bellevue Square to mitigate damages and the inability to recover

consequential damages were inconsistent with the relief sought. The court concluded

that "Bellevue Square is entitled to specific performance of the Lease."

      Whole Foods filed a notice for discretionary review. We granted discretionary

review and stayed the preliminary injunction.

                                            4
No. 77770-0-1/5

                                         ANALYSIS

       We review a trial court's decision to grant a preliminary injunction and the terms

of the injunction for an abuse of discretion. Resident Action Council v. Seattle Haus.

Auth , 177 Wn.2d 417, 428, 327 P.3d 600(2013); Rabon v. City of Seattle 135 Wn 2d

278, 284, 957 P.2d 621 (1998). "A trial court necessarily abuses its discretion if the

decision is based upon untenable grounds, or the decision is manifestly unreasonable

or arbitrary." Kucera v. Dep't of Transp. 140 Wn.2d 200, 209, 995 P.2d 63(2000).

       A party seeking a preliminary injunction must show"'(1) that he has a clear legal

or equitable right,(2)that he has a well-grounded fear of immediate invasion of that

right, and (3)that the acts complained of are either resulting in or will result in actual

and substantial injury to him.'" Tyler Pipe Indus , Inc v Dept of Revenue 96 Wn.2d

785, 792, 638 P.2d 1213(1982)(quoting Port of Seattle v. Intl Longshoremen's &

Warehousemen's Union 52 Wn 2d 317, 319, 324 P.2d 1099 (1958)). If the party fails to

show any one of these elements, the court must deny the injunction. Kucera 140

Wn.2d at 209-10.

       In determining whether the party has a clear legal and equitable right, the court

examines the likelihood the party will prevail on the merits. Kucera, 140 Wn.2d at 216.

"A doubtful case will not warrant an injunction." Huff v. Wyman 184 Wn.2d 643, 652,

361 P.3d 727 (2015). In deciding whether to grant a preliminary injunction, the court

"must reach the merits of purely legal issues." Rabon 135 Wn.2d at 286. The

appellate court on review "must similarly evaluate purely legal issues in assessing the

propriety of a decision to grant or deny a preliminary injunction." Rabon 135 Wn.2d at

286.

                                              5
No. 77770-0-1/6

       "An injunction is distinctly an equitable remedy and is 'frequently termed the

strong arm of equity, or a transcendent or extraordinary remedy, and is a remedy which

should not be lightly indulged in, but should be used sparingly and only in a clear and

plain case.'" Kucera 140 Wn 2d at 2092 (quoting 42 Am. JUR. 2d In unctions § 2, at 728

(1969)). "An injunction is an extraordinary equitable remedy designed to prevent

serious harm. Its purpose is not to protect a plaintiff from mere inconveniences or

speculative and insubstantial injury." Tyler Pipe 96 Wn.2d at 796.

       Injunctive relief is not warranted "where there is a plain, complete, speedy and

adequate remedy at law." Tyler Pipe, 96 Wn.2d at 791. Courts have found remedies to

be inadequate where "(1) the injury complained of by its nature cannot be compensated

by money damages,(2)the damages cannot be ascertained with any degree of

certainty, and (3) the remedy at law would not be efficient because the injury is of a

continuing nature." Kucera 140 Wn.2d at 210.

       Whether Bellevue Square has a clear legal and equitable right to specific

performance is governed by the language of the lease. The interpretation of a lease is

a question of law that this court reviews de novo. 4105 1st Ave S Invs., LLC v. Green

Depot WA Pac Coast, LLC, 179 Wn. App. 777, 784, 321 P.3d 254 (2014). The primary

goal is to ascertain the parties' intent. Berq v. Hudesman 115 Wn.2d 657, 663, 801

P 2d 222(1990). The court determines intent by focusing on the objective

manifestation of the parties in the written contract. Hearst Commc'ns, Inc. v. Seattle

Times Co., 154 Wn.2d 493, 503, 115 P.3d 262(2005). "Accordingly, a court considers

only what the parties wrote, giving words in a contract their ordinary, usual, and popular

       2   Internal quotation marks omitted

                                              6
No. 77770-0-1/7

meaning unless the agreement as a whole clearly demonstrates a contrary intent."

Green Depot 179 Wn. App. at 784. Hearst, 154 Wn.2d at 503-04.

       A contract "should be construed as a whole and, if reasonably possible, in a way

that effectuates all of its provisions" Colo. Structures, Inc v. Ins Co of the W. 161

Wn.2d 577, 588, 167 P.3d 1125 (2007).3 "Interpretations giving lawful effect to all the

provisions in a contract are favored over those that render some of the language

meaningless or ineffective." Grey v. Leach 158 Wn App. 837, 850, 244 P.3d 970

(2010). We will not disregard the language the parties chose to use. Snohomish

County Pub. Transp. Benefit Area Corp v. FirstGroup Am., Inc., 173 Wn.2d 829, 840,

271 P.3d 850 (2012).

       The plain and unambiguous language of the lease does not support the trial

court's interpretation.

       Section 7.2(b) of the lease requires Whole Foods to conduct its business "without

interruption":

                     (b)    Operating Covenant. Tenant covenants to conduct
       and carry on Tenant's business in the Demised Premises without
       interruption (excluding any temporary period during which Tenant is
       closed for rebuilding or repairs following a casualty or condemnation or by
       reason of any Force Majeure Events)for the first ten (10) Lease Years of
       the Demised Term ("Tenant's Operating Covenant") and, for so long as
       Tenant's Operating Covenant is in effect, shall keep the Demised
       Premises open for business at a minimum during the days and hours
       designated from time to time by Landlord, which at the time of the
       execution of this Lease Landlord designates to be as follows:

                 Monday through Saturday               800 a.m. to 9:30 p.m.

                 Sunday                                9:00 a m. to 7:00 p.m.

       The hours designed by Landlord are minimum hours. Tenant may remain
       open for additional hours in its sole discretion. In no event shall Tenant be

       3   Footnote omitted
                                            7
No. 77770-0-1/8

      required to be open for business between the hours of 11:00 p.m. and
      7:00 a.m. This provision shall not apply if the Demised Premises are
      closed and the business of Tenant is temporarily discontinued therein on
      account of strikes, lockouts, casualty or similar causes beyond the
      reasonable control of Tenant. Tenant shall not be required to be open on
      Easter, Thanksgiving Day or Christmas Day. Tenant shall keep in stock
      on the Demised Premises a full and ample line of merchandise for the
      purpose of operating its business and shall maintain an adequate sales
      force.

       Section 7.2 contains two specific remedies for breach. First, Bellevue Square

may recover liquidated damages if Whole Foods "fail[s] to be open to the public on a

fully-operational basis during the hours required under this Lease":

                    (c)     Liquidated Damages for Unauthorized Closure. If,
      after Tenant has initially opened for business at the Demised Premises,
      Tenant should fail to be open to the public on a fully-operational basis
      during the hours required under this Lease, and such failure continues for
      a period in excess of five (5) days after Landlord has notified Tenant in
      writing of such failure, Tenant shall pay to Landlord, for each hour or
      portion thereof that Tenant fails to open, One Hundred Dollars ($100.00),
      within one (1) month of Landlord's written request therefor; but in no event
      shall the charge described in this Section 7.2(c) exceed Five Thousand
      and no/100 Dollars ($5,000.00) in any twelve (12) month period during the
      Demised Term. As long as Tenant opens the Demised Premises for
      business within one (1) hour of the opening time otherwise required,
      Landlord agrees to waive two (2) charges described in this Section 7.2(c)
      during any twelve (12) month period during the Demised Term.

      Second, at any time after the Tenant's Operating Covenant "has expired,"

Bellevue Square has the right to terminate the lease if Whole Foods "discontinues

operation of its business" in the premises for six consecutive months.

                     (d)    Landlord Recapture Right. Notwithstanding the
      foregoing, if at any time after Tenant's Operating Covenant has expired,
      Tenant discontinues operation of its business in the Demised Premises for
      a period of six (6) consecutive months (excluding any temporary period
      during which Tenant is closed for rehabilitation, modernization or
      improvement of the Demised Premises, for rebuilding or repairs following
      a casualty or condemnation or by reason of any Force Majeure Events),
      Landlord thereafter shall have the right, at its sole option, to terminate this
      Lease upon advance written notice to Tenant ("Landlord's Termination

                                            8
No. 77770-0-1/9

       Notice") given at any time prior to the date Tenant either(A) notifies
       Landlord in writing that it covenants to re-commence operation of its
       business in the Demised Premises within two (2) months, or(B) notifies
       Landlord in writing that it has entered into a binding lease assignment or
       sublease with an assignee or subtenant in accordance with this Lease
       who has covenanted to open for business in the Demised Premises within
       two (2) months. This Lease shall terminate one (1) month after Landlord
       gives Tenant Landlord's Termination Notice.

       Neither remedy applies here. The liquidated damages provision of section 7.2(c)

expressly applies to only an "Unauthorized Closure" of the business "during the hours

required under this Lease." It permits Bellevue Square to sanction Whole Foods for the

failure to open to the public during the hours provided in section 7.2(b). It does not

apply in the event that Whole Foods vacates or abandons the property.

       Section 7.2(c) further provides:

       Notwithstanding anything herein to the contrary, Tenant's late opening or
       early closure shall not constitute a default under this Lease unless (i)
       Landlord provides written notice to Tenant of Tenant's late opening or
       early closure; and (ii) Tenant thereafter opens late or closes early three (3)
       times in a twelve (12) month period.

By its express terms, the conduct addressed in section 7.2(c) constitutes a lease default

in only very limited circumstances. The tenant must open late or close early, the

landlord must give the tenant written notice of this, and the tenant must thereafter open

late or close early three times in a 12-month period. It is undisputed these events did

not occur. Therefore, section 7.2 does not provide a basis for seeking a default remedy

against Whole Foods.

       The right to recapture provision in section 7.2(d) expressly applies only "after

Tenant's Operating Covenant has expired." The Tenant's Operating Covenant is in

effect for the first 10 years of the lease agreement. Whole Foods vacated the premises

                                             9
No. 77770-0-1/10

and stopped operating its business after only 1 year, so the right of recapture set out in

section 7.2(d) does not apply.

       Article 10,"Default and Remedies," governs the landlord's remedies in the event

of default by the tenant. Article 10.1(a)(i) specifically identifies "abandonment of the

Demised Premises by Tenant." Whole Foods admits default of the lease because it

vacated the premises.

       Section 10.1(a) states that if Whole Foods defaults in paying rent or performing

any of the other agreements in the lease and fails to cure the default, Bellevue Square

may treat the default as a breach and pursue its remedies under the lease. The lease

states Bellevue Square's remedies are "subject only to the limitations thereon set forth

in Section 10.1(c) below." Section 10.1(a) names three specific events that constitute

default and breach by Whole Foods:

                     (i)    The abandonment of the Demised Premises by
       Tenant.

                  (ii)  The failure of Tenant to perform any covenant to pay
       money as and when due.

                    (iii) Tenant's failure to observe or perform any of the other
       covenants, conditions or provisions of this Lease to be observed or
       performed by Tenant.

       Upon tenant default, section 10.1(b) allows Bellevue Square to either terminate

the lease under section 10.1(b)(i) or continue the lease under section 10.1(b)(ii). If

Bellevue Square terminates the lease, Whole Foods must "immediately surrender

possession" of the premises and pay all past due rent; the "expenses of reletting" the

property, including repairs; and "reasonable" attorney fees.

                                             10
No. 77770-0-1/11

       At oral argument, Bellevue Square stated it was proceeding under section

10.1(b)(ii). Under section 10.1(b)(10, "Continue the Lease," Bellevue Square may:

       Maintain Tenant's right to possession, in which case this Lease shall
       continue in effect whether or not Tenant has vacated or abandoned the
       Demised Premises. In such event Landlord shall be entitled to enforce all
       Landlord's rights and remedies under this Lease, including the right to
       recover the Rent, damages from Tenant's default or breach, and any other
       payments as they may become due hereunder, and to specifically enforce
       Tenant's obligations hereunder and obtain iniunctive relief from further
       defaults and breaches and shall be entitled to enter the Demised
       Premises for the purpose of curing Tenant's failure to observe or perform
       any of the other covenants, conditions or provisions of this Lease to be
       observed or performed by Tenant, and in such case, Tenant shall pay the
       entire cost thereof as Additional Rent within one (1) month after receipt of
       an invoice therefor from Landlord.141

Under this provision, Bellevue Square can continue the lease and collect rent,

damages, and any other applicable payments,"whether or not Tenant has vacated or

abandoned" the premises. But section 10.1(c) limits Bellevue Square's remedies as

follows:

                   (c)    Limitations on Landlord's Remedies. Anything in
      Sections 10.1(a) and 10 1(b) above to the contrary notwithstanding,
      Landlord's exercise of its rights and remedies at law or in equity upon the
      occurrence of an Event of Default shall be subject to the following
      limitations:

                           (i)     Duty to Mitigate. Landlord shall exercise
      commercially reasonable efforts to mitigate its damages resulting from
      Tenant's default; provided, however, so long as Landlord has exercised
      commercially reasonable efforts to mitigate its damages, Landlord shall
      not be liable to Tenant for, nor shall Tenant's liability to Landlord be
      diminished by, Landlord's inability to relet the Demised Premises.

                              (ii)   Redecorating Costs. Tenant shall have no
       liability to Landlord for any costs or expenses incurred by Landlord in
       connection with redecorating or remodeling the Demised Premises in
       connection with a reletting thereof.

       4   Emphasis added
                                           11
No. 77770-0-1/12

                             (iii)  Percentaqe Rent Tenant shall have no liability
       to Landlord for any Percentage Rent that would have accrued subsequent
       to the later to occur of(A) the last day that Tenant's Operating Covenant is
       in effect, and (B)the date that Tenant ceases operating its business at the
       Demised Premises.

                            (iv)   No Consequential Darnaqes. Except with
       respect to the specific circumstances described in Section 3.4 above, in
       no event shall Tenant be liable to Landlord for any indirect or
       consequential damages including but not limited to, lost rent, revenue, or
       other payments from other tenants, loss in value of the Development,
       and/or lost profits.

       The trial court concluded these limitations did not prevent ordering Whole Foods

to reopen within 14 days. The court concluded the duty to mitigate applies only if

Bellevue Square terminates the lease rather than continue it. The court also noted the

duty to mitigate is imposed by law regardless of whether it is included in the lease. As

to the prohibition against consequential damages, the court found many of the harms

asserted as a result of Whole Foods' default were "consequential and indirect damages

under law, for which, pursuant to the Lease, Bellevue Square has waived the right to

compensation." However, the court determined it could consider these harms for

purposes of granting injunctive relief.

      The court's interpretation of the limitations on Bellevue Square's remedies is

inconsistent with the plain language of the lease. Section 10.1(c) states the limitations

apply to the "Landlord's exercise of its rights and remedies at law or in equity upon the

occurrence of an Event of Default." The limitations of section 10.1(c) apply whether

Bellevue Square terminates or continues the lease. Further, contrary to the assertion

by Bellevue Square at oral argument, section 10.1(c) is not limited to an anticipatory

breach of the contract.

                                            12
No. 77770-0-1/13

       Regardless of whether Bellevue Square decided upon Whole Foods vacating the

premises to either terminate or continue the lease, under the terms of the lease,

Bellevue Square has the duty to mitigate damages The lease expressly requires

Bellevue Square to attempt to "relet" the premises. The duty to mitigate damages is

inconsistent with the trial court's conclusion that Bellevue Square is entitled to compel

Whole Foods to continue operating. For Bellevue Square to be able to lease the

premises to another tenant, Whole Foods must be permitted to cease operating on the

premises.

       Nonetheless, Bellevue Square argues section 10.1(b)(ii) of the lease expressly

makes specific performance an available remedy for Whole Foods' breach of the

Tenant's Operating Covenant in section 7.2(b). We reject this argument. As previously

noted, the Tenant's Operating Covenant has very specific and limited remedy

provisions.

       When Whole Foods vacated the premises, Bellevue Square elected under

section 10.1(b)(ii) to continue the lease, entitling it to "recover the Rent, damages from

Tenant's default or breach, and any other payments as they may become due

hereunder." This default remedy option contemplates an ongoing obligation on the part

of the defaulting tenant to continue making the required payments to the landlord as

those payments become due. To protect the landlord from "further defaults" by the

defaulting tenant, section 10.1(b)(ii) allows Bellevue Square to "specifically enforce

Tenant's obligations hereunder and obtain injunctive relief from further defaults and

breaches "5

       5   Emphasis added.
                                            13
No. 77770-0-1/14

       In other words, once there has been a tenant default entitling Bellevue Square to

invoke the remedies provided under section 10.1 and Bellevue Square has elected to

invoke its option to treat the lease as continuing, there is a continuing obligation on the

part of the tenant to make requisite payments as they become due. Bellevue Square

has the right under section 10.1(b)(ii) to seek specific performance of these continuing

obligations in the event of further default by the tenant. But under the express terms of

the lease, the right of Bellevue Square to specific performance and injunctive relief does

not apply beyond the circumstances specifically described in section 10.1(b)(ii)

       Because Bellevue Square is not entitled to specific performance of all of the

terms of the lease, the court erred in concluding Bellevue Square established a clear

legal right to a preliminary injunction and specific performance. The trial court found the

indirect harms experienced by Bellevue Square are "difficult to quantify with reasonable

certainty" and granted injunctive relief because gni° adequate remedy at law exists to

compensate Bellevue Square." The language of the lease does not support the court's

conclusion. Under section 10.1(c)(iv) of the lease, Bellevue Square explicitly waives its

right to recover "any indirect or consequential damages" such as "loss in value of the

Development, and/or lost profits."

       Subject to the limitations stated in section 10.1(c), the lease gives Bellevue

Square an adequate, complete, and speedy remedy for the harm caused by Whole

Foods vacating the premises and it may continue the lease and continue to recover

rent, damages, and other payments from Whole Foods. If Whole Foods defaults on the

continuing payment obligations, Bellevue Square is entitled to seek specific

                                             14
No. 77770-0-1/15

performance and injunctive relief based on these further defaults as authorized by

section 10.1(c).

      We conclude the court abused its discretion by entering a preliminary injunction

ordering Whole Foods to reopen and continue operating. We reverse and remand.

WE CONCUR:

                                           15