Daily Development for
Wednesday, August 26, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD TENANT; COMMERCIAL; EXCLUSIVE USE CLAUSES: Exception to exclusive use clause in shopping center lease that permits operation of "existing facilities being operated in conjunction with Coronado Bowling Center snack bar and dining room," permits landlord to lease to restaurant activities of similar size and character even after bowling center has disappeared from shopping center.

Cafeteria Operators, L.P. v. CoronadoSanta Fe Associates, L.P., 952 P.2d 433 (N.M. App. 1997).

The New Mexico appeals court commented that the phrasing of the exclusive use clause was too vague to warrant the conclusion that the Tenant was protected from restaurant activities in the same space that were not interrelated with a bowling alley. It noted that the total square footage of the new restaurant uses were considerably less than those occupied by the bowling alley restaurant and it upheld the conclusion of the trial court that the new restaurant user was not more competition for tenant than was the bowling alley restaurant operator. It concludes that if the protected restaurant operator really wanted to exclude all new restaurants from the space, it should have been more explicit.

Comment: The opinion suffers from the same vagueness that it finds in the clause. Although it appears to construe the clause itself, some of the court's reasoning is based upon whether the new restaurants in fact present new competitive burdens for the Tenant. If the clause indeed protected the Tenant, then it is the Tenant, and not the court, that should be making that decision, and the question of whether these new uses threaten the Tenant should have no impact on the interpretation of the clause. These considerations are relevant, of course, on the question of whether an injunction should issue, but the court does not clearly separate the "right" and the "remedy" issues.

LANDLORD/TENANT; TENANT'S REMEDIES; INJUNCTION: Court has discretion to order removal of a building built in violation of a configuration agreement in lease where landlord built the building after litigation had been filed and while negotiations were pending, even though court had dissolved a preliminary injunction.

Cafeteria Operators, L.P. v. CoronadoSanta Fe Associates, L.P., 952 P.2d 435 (N.M. App. 1997).

Tenant sought to enjoin shopping center Landlord from constructing a building in violation of a "configuration agreement" that restricted structures in the parking lot. The Tenant had filed a lawsuit, and there were extensive settlement negotiations. The court had dissolved a temporary injunction while settlement negotiations were pending.

The Landlord took the position that it had appeared to the Landlord that only one issue attorney's fees remained outstanding, and that otherwise it viewed the matter as resolved. It continued to negotiate concerning the attorney's fees. It argued that the Tenant in fact had waived any objection to the existence of the building and at best was entitled only to its fees.

The trial court ruled that the issue of attorney's fees was a substantial obstacle the fees amounted to over $90,000 and there was no "give" by either party on the negotiation. To build the structure where there clearly was no waiver by or settlement with the Tenant amounted, in the eyes of the court, to be "flaunting the legal process in order to gain a tactical advantage."

At another part of the opinion, the court characterized New Mexico law as drawing no line between enforcement considerations involving real property interests and those involving contract rights generally. The same considerations as to the availibility of injunctive relief obtain. It thus rejected Tenant's claim that it was automatically entitled to an injunction, but went ahead to award the injunction anyway based upon the special injury to Tenant and deliberate conduct by the Landlord.

In addition, the court awarded the Tenant $100,000 in punitive damages, pursuant to an analysis discussed elsewhere under the heading: "Landlord/Tenant; Tenant's Remedies; Punitive Damages."

Comment: There is a strong dissent that states what is also the editor's reaction to this case. What tactical advantage did the Landlord gain? It appears that the Landlord took a very signficant risk here, and it did so undoubtedly because it viewed the "bottom line" to be that it would have to pay $90,000 or so in cash for attorney's fees. All other elements of the negotiated compromise were agreed to by the parties. At this point, why shouldn't the fair approach be to tell the Landlord to agree to the originally stated settlement, including the maximum attorney's fees, and leave things at that, or, in the alternative, be subject to the injunction? If there are new issues concerning the Tenant's injury that would be another matter. But there are no such allegations here. The Landlord is being punished basically because it could not reach final agreement on the attorney's fee issue.

In another part of the case, the Landlord was found liable for gouging on CAM fees. It appears that the trial court might have been lashing out at the Landlord for its overreaching attitude generally, rather than reacting only to the issues involved in the issue concerning the new building. But the appeals court doesn't see it that way.

LANDLORD/TENANT; TENANT'S REMEDIES; PUNITIVE DAMAGES: New Mexico will recognize punitive damages claim for wilfull breaches of contract, even if they are "efficient."

Cafeteria Operators, L.P. v. CoronadoSanta Fe Associates, L.P., 952 P.2d 435 (N.M. App. 1997), discussed also under the heading Landlord/tenant; Tenant's Remedies; Injunction."

Tenant alleged that landlord's proposal to build out a "pad" site in the shopping center parking lot violated tenant's rights under the "configuration agreement" in tenant's least. While litigation was pending and settlement negotiations were proceeding, but after a trial court has dissolved a preliminary injunction, Landlord proceeded to build the structure.

In addition to ordering the demolition of the structure, the trial court ordered $100,000 punitive damages. The Court of Appeals affirmed by a 21 vote. In a very valuable and informative dissenting opinion, Chief Judge Hartz pointed out that New Mexico has unique jurisprudence on the question of punitive damages for intentional breach of contract.

Most jurisdictions would follow the Restatement rule that would not permit punitive damages in such cases absent special circumstances not present here. The theory is that a deliberate breach of contract may not contravene public policy if it is "efficient" designed to avoid wasted costs and not malicious in intent or fraudulent in character in other words breaches that are effectively tortious. But Judge Hartz suggests that New Mexico cases in fact have applied a broader standard, one which he feels is too vague and probably goes too far.

"Perhaps uniquely among American jurisdicitions, New Mexico appears to treat every breach of contract as a tort in determining whether to impose punitive damages." The standard set forth in the cases is whether the breach is committed with "wanton disregard for the [rights of the party suffering the breach." This, of course, would describe any deliberate breach, since it is "wanton" in the sense that it is undertaken in the face of a contractual obligation to do otherwise.

Comment: The case perhaps can be distinguished because the court grants the punitive damages also for the landlord's perceived "gouging" on CAM charges. This issue receives little attention in the appeal, but in fact might have driven the punitive damages determination below. If not, the dissenter's concerns are well founded. As the parallel discussion of this case indicates, the breaching party probably felt that under the circumstances its "downside" risk was to pay for the other side's attorney's fees. It in fact gets slugged quite a bit harder (but, ironically, one element of relief not granted to Tenant was attorney's fees.)

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