Daily Development for Friday, February 8, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

LANDLORD-TENANT; COMMERCIAL; SHOPPING CENTERS:  Federal court rejects various claims of antitrust violations in going dark aggressively case. 

Delco LLC v. Giant of Maryland, LLC, 2007 WL 3307018 (U.S. Dist. Ct. D. N.J. 2007)

A shopping center owner and a customer of a tenant supermarket sued the supermarket and a food cooperative for alleged antitrust violations.  A proposed acquisition of the supermarket tenant by the cooperative would have closed the supermarket's store.  The cooperative was planning to keep the leased space vacant while continuing to pay full rent.  The landlord and the consumer filed a motion for preliminary injunction and for a temporary restraining order to enjoin the contracting parties from closing the supermarket.  They asked the court to invalidate  a provision in the supermarket's lease that would have prevented other supermarkets from opening in the shopping center.  The landlord claimed that this alleged antitrust violation would result in its loss of the economic advantage of having a continuing supermarket operation, and cause a potential loss of tenants, customers, and income.

The defendants responded that the acquisition of the supermarket was part of an overall strategy by the supermarket chain to terminate its activity in this region of the state.  In fact, defendants claimed that the supermarket had required that this store be included in the acquisition, even though it was a heavy money loser. 

The Court denied preliminary injunctive relief to both the landlord and its tenant.   It ruled that there was insufficient evidence of per se monopolization or other Sherman Act violations, at least at the summary judgment level.  There were sufficient other explanations for the conduct of the cooperative and the other supermarket to deflect charges of conspiracy in restrain of trade or division of the market. 

The case has an interesting summary of two credentialed economists discussing monopolization in the context of supermarket locations.  One economist defined the relevant market as that of supermarket-type stores, and on that basis demonstrated that the cooperative had established a sufficient market presence with this acquisition that it would be able to increase prices without driving consumers to other supermarkets, as the market area was contained and there was no competition within it.  The other economist accepted the basic analysis, but claimed that the relevant market did not just encompass supermarkets, but included both large and smaller grocery retailers, including, for instance Wal Mart.  When these retailers were included in the market, it was clear that there was no monopolization, as there were several such outlets within the market area and, the economist explained, any price increase by the coooperative would drive customers to these other stores.  Plaintiffs insis
ted that a market defined only by supermarket style food retailers was appropriate.

Going forward to further proceedings, the court held that the landlord lacked standing to bring an antitrust action because its alleged injury was merely an incidental by-product of alleged anti-competitive conduct and not the direct result of the alleged scheme.  It noted that the landlord was neither a customer nor a competitor in the market in which trade was allegedly restrained.  Instead, it was only a supplier providing retail space to market participants.  It held that suppliers to direct market participants typically cannot seek recovery under antitrust laws because their injuries are too secondary and indirect to be considered antitrust injuries.

The Court found, however, that the consumer had standing to sue because of his claim that he shopped regularly at the supermarket and alleged that, as a result of its closure, he would be denied the benefits of free competition and face higher prices and limited consumer choice.  The consumer was notdisqualified because he was also construction manager of the plaintiff landlord.  On the other hand, it found that while he had standing to bring an action for injunctive relief, he was not entitled to an award for treble damages because such an award requires a showing of an actual injury in addition to a showing of threatened loss or damage.

Comment 1: The court seemed to buy the larger market definition, and this case doesn't look like its going very far.  For another case finding that a shopping center developer lacks standing in a case like this one, this time at the Federal Circuit Court level, see Serfecz v. Jewel Food Stores, 67 F.3d 591 (7th Cir. 1995), the DIRT DD for 2/15/96. 

Comment 2:  As added ballast, the court commented that it didn't appear that the Landlord would be able to show substantial injury anyway.  It anticipated that there would conceivably be a vacancy when it leased to the supermarket with a exclusive clause protected the space but no continuous operation clause and a right to sublet.  Although there is some merit to this notion, the editor notes that there is at least one case holding that a tenant with a right to sublet nevertheless has a duty sounding in good faith and fair dealing to sublet to a tenant that will generate comparable percentage rents
Olympus Hills Shopping Center, Ltd. v. Smith's Food & Drug Centers, Inc., 889 P.2d 445 (Utah App. 1994) (The DIRT DD for 5/25/95).  But compare Oakwood Village, LLC, v. Abertsons Inc., 104 P.3d 1226 (Utah 2004) (the DIRT DD for 3/10/05), a subsequent Utah Supreme Court case that is more appreciative of the tenant's position generally. 

Comment 3: As to the claim that the cooperative might engage in monopolization by enforcing the exclusive use clause while leaving its store vacant, at least one case holds that a tenant cannot use the catbird seat exclusive in that way.  Tippecanoe Assocs. II, LLP v. Kimco Lafayette 671, Inc., 829 N.E.2d 512 (Ind. 2005).  (The DIRT DD for 2/2/06) (Exclusive covenant in commercial lease is unenforceable where tenant has no interest in shopping center other than prohibiting competition.)

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