Caseflicks

District Court, M.D. Georgia • 1991

CBL & Associates, Inc. v. McCrory Corp.

761 F. Supp. 807 | 1991 U.S. Dist. LEXIS 4801 | 1991 WL 54992

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Takeaway

In short, this case shows that even an express continuous-operation clause will not ordinarily justify an injunction when enforcement would require years of judicial retail-business supervision and the landlord’s alleged losses can be addressed with damages or reletting.

Background

CBL owned and operated Georgia Square Mall in Athens, Georgia. McCrory leased a 9,306-square-foot store under a twenty-year lease that required it to operate the premises throughout the lease term, maintain inventory designed to produce maximum gross sales, and remain open specified days and hours. McCrory was the mall’s fifth-largest tenant and largest discount variety store, but it occupied only about 1.35% of the mall’s leasable space and was not an anchor tenant.

McCrory’s sales declined from about $870,000 in 1988 to about $683,000 in 1990, while the mall’s overall sales increased. It lost approximately $50,000 in each of its final two years. Facing competition from nearby discount stores, McCrory decided to close, unsuccessfully sought a lease buyout, and began advertising a closing sale.

CBL sued in Clarke County Superior Court, and McCrory removed the action to federal court. CBL sought a preliminary injunction, ultimately to be made permanent, compelling McCrory to keep operating its store through the lease’s 2000 expiration. The district court denied the requested injunction.

Issues

Issue #1

Whether CBL showed a substantial likelihood of obtaining specific performance of the lease’s continuous-operation clause.

Holding

No. A court of equity would not specifically enforce this operating obligation because enforcement would require prolonged, detailed judicial supervision of McCrory’s retail business.

Reasoning

A preliminary injunction requires, among other things, a substantial likelihood of success on the merits. Because CBL sought an order requiring McCrory to keep its store open until 2000, the requested preliminary relief depended on whether the court could ultimately grant specific performance of the continuous-operation covenant.

Equity generally will not specifically enforce a contract that requires the court’s continuous supervision. Ordering McCrory to remain open for the nine years left on the lease would draw the court into ongoing oversight of a retail operation rather than enforcement of a discrete, readily completed obligation.

The lease also lacked the precision necessary for specific performance. Its requirements that McCrory operate with “due diligence and efficiency,” carry merchandise reasonably designed to produce “maximum Gross Sales,” and maintain an appropriate stock would require recurring judgments about inventory, pricing, staffing, management, and market conditions.

CBL’s proposal that its mall manager monitor compliance did not solve the problem. If CBL and McCrory disagreed over whether the store’s operations met the lease standard, the court—not the mall manager—would have to resolve the dispute. Nor could the court sensibly require McCrory to reuse its 1987 business methods, because market conditions had materially changed and that directive itself was indefinite.

The court found support in the modern line of shopping-center cases refusing mandatory injunctions against departing tenants. Those cases recognize that operating a retail business requires specialized skill and innumerable day-to-day decisions, making judicial management impractical. The contrary authorities were distinguishable or unpersuasive, including cases involving a landlord’s unusually complete dependence on percentage rent or an order more narrowly framed to avoid operational direction.

Issue #2

Whether CBL would suffer irreparable injury if McCrory closed its store.

Holding

No. CBL’s claimed injuries were primarily economic, speculative, and capable of mitigation or compensation through legal remedies.

Reasoning

Irreparable injury requires an actual and imminent harm for which money damages are inadequate. Lost minimum rent was a straightforward economic loss that could be addressed in an action for damages, rather than a basis for extraordinary equitable relief.

CBL’s claimed loss of percentage rent was speculative. McCrory had never generated enough sales to trigger percentage rent, and its 1990 sales were less than half the approximately $1.45 million threshold required during the relevant lease year. Its declining performance and the surrounding competition made future percentage rent highly unlikely.

CBL also argued that McCrory’s departure would reduce customer traffic, hurt other tenants, impair tenant mix, and create an appearance of mall instability. The court acknowledged that mall tenants may benefit from one another’s customer draw, but no other tenant testified to an expected injury, and a money-losing store’s continuing drawing power was uncertain.

McCrory was not an anchor tenant and occupied only a small portion of the mall. Any harm from its departure could be mitigated by reletting or subdividing the space, which might even increase CBL’s rental income. The mall manager’s optimistic testimony about the mall’s prospects also undermined the claim that replacing McCrory would be exceptionally difficult.