Can a Commercial Landlord Force a Tenant to Stay Open?
In a word, yes.
In a recent case (issued November 25, 2020), the Indiana Court of Appeals case had to determine whether it was appropriate for a trial court to issue an order compelling Abercrombie & Fitch Stores, Inc. (Abercrombie) to keep its store open, as demanded by the landlord, Simon Property Group, L.P. (Simon). That facts are a muddled mess. For our purposes, the relevant facts showed that Abercrombie and Simon had a long negotiation about back rent amounts, leases and lease amendments, finally resulting in a signed “settlement agreement and dozens of lease amendments for some, but not all, of the properties leased from Simon. On March 13, 2020, Abercrombie sent Simon several executed lease amendments with Abercrombie representatives’ original handwritten signatures in three separate packages.
Even though Abercrombie had sent executed lease documents to Simon, Abercrombie decided to close all stores effective March 16, 2020, because of the COVID-19 pandemic. Beginning the next afternoon, on March 17, 2020, Simon began sending electronically-signed copies of several lease amendments to Abercrombie by email. On March 18, in response to the COVID-19 pandemic, Simon announced that it was temporarily closing its malls across the nation. No evidence was offered to prove that Abercrombie communicated its decision to close the stores to Simon.
Abercrombie then sent a letter to Simon formally retracting the signatures on forty-two leases and lease amendments. Abercrombie’s only stated reason for the retraction was “the current uncertainty regarding the impact of COVID-19.” Abercrombie also stated that the lease amendment agreement “shall be of no further force or effect.” Abercrombie did not provide Simon with executed copies of the remaining lease documents or the settlement document contemplated under the lease amendment.
Simon rejected Abercrombie’s retraction on the grounds that Abercrombie had repeatedly confirmed the lease amendment agreement, and that the parties had been fully performing under the lease amendment agreement for nearly two months. Simon continued forwarding executed documents to Abercrombie for signature.
By March 20, 2020, Abercrombie had paid its second month of rent at the lower rate under the
lease amendment agreement. On March 27, Abercrombie sent notices of termination to
landlords at the locations where the leases had expired on or before January 31, 2020. Abercrombie instructed the landlords to consider the leases as month-to-month tenancies from that day forward.
The Lawsuit Is Filed
On April 7, 2020, Simon sued Abercrombie, seeking a declaratory judgment that the lease amendment agreement was valid and enforceable. Simon also sought damages and specific performance for Abercrombie’s breach of the lease amendment agreement. Three weeks later, Abercrombie made clear its intention to permanently close and abandon the stores that were included in the lease amendment agreement. In response, Simon sought a temporary restraining order and a preliminary injunction on
April 27, 2020, seeking to prohibit Abercrombie from permanently closing its stores. The trial court granted an emergency temporary restraining order in Simon’s favor on May 1, 2020.
Following a hearing on the motion for preliminary injunction on May 8, 2020, and then, after a hearing, ordered Abercrombie not to permanently close its stores.
The Interlocutory Appeal
On appeal, the Court of Appeals issued an order in Simon’s favor and made these important findings-
The decision to grant or deny a preliminary injunction rests within the sound discretion
of the trial court, and appellate review is limited to whether there was a clear
abuse of that discretion.
An injunction is an extraordinary remedy that should be granted only with caution. Injunctions must be narrowly tailored and never more extensive in scope than is reasonably necessary to protect the interests of aggrieved parties.
The purpose of a preliminary injunction is to maintain the status quo, which is the last, uncontested peaceful status between the parties.
To obtain a preliminary injunction, the moving party must show by a preponderance of the evidence that: (1) its remedies at law (i.e., a money award) are inadequate and that irreparable harm will occur during the pendency of the action as a result; (2) it has at least a reasonable likelihood of success on the merits by establishing a prima facie case; (3) the threatened harm it faces outweighs the potential harm the injunction would pose to the non-moving party; and (4) the public interest would not be disserved by granting the injunction.
The Mandatory Injunction
Frankly, all of the findings are pretty routine and ordinary law. What makes the Simon v. Abercrombie interesting is that a trial court issued a “mandatory injunction.” Ordinarily, trial courts issue “prohibitory” injunctions that stop someone from doing something. Here are some examples-
An order not to remove a sign
An order not to remove trees from a protected wildlife area
An order not to issue another person’s trademark, customer list or other intellectual property
An order prohibiting someone from selling property in dispute
By contrast, an order compelling someone to do something, such as “Keep your stores open and operating as normal,” is rare. The rarity might explain why Abercrombie claimed that the trial court’s order should be set aside because it was an “improper mandatory injunction.” Abercrombie asserted that the trial court erroneously construed the status quo position of the parties as being the period prior to Abercrombie’s March 16 decision to close all stores. Abercrombie argued that March 17, 2020, was the appropriate date that the trial court should have considered, which was just prior to Simon’s filing of the action and when its stores were already temporarily closed due to pandemic concerns. Hence, Abercrombie asserted that the trial court’s order improperly compelled it to take an action and
engage in an activity that it had not otherwise been doing, i.e., reopen nearly fifty stores that it had already closed.
The trial court disagreed and distinguished between the “permanent” closing of stores and the “temporary” closing of stores due to COVID-19. The Court of Appeals noted that the parties had been performing under the lease amendment agreement for nearly two months before the COVID-19 pandemic prompted a temporary closure of Simon malls. The Court of Appeals was clear in its reasoning when it stated that, “the circumstances here have nothing to do with the temporary, government-ordered closures. Rather, it was Abercrombie’s threat to permanently close and
abandon its stores on the theory that there was no binding contract between the
parties that prompted Simon’s request for an injunction.” Simon requested injunctive relief prohibiting the permanent closures, as opposed to the government-ordered temporary closures. The Court concluded that the trial court’s order was not an improper mandatory directive. In other words, the injunctive relief granted for Simon did not order Abercrombie to reopen its stores in defiance of the temporary closures that the government had ordered because of the COVID-19 crisis. The temporary
injunction merely prohibited Abercrombie from permanently closing its stores and abandoning those locations.
Conduct Can Prove the Agreement
The Court also noted something very important- how the parties conduct themselves can be relevant and even controlling. “The parties’ performance under an agreement will amount to an unambiguous and overt admission by both parties that a contract existed.” In simple terms, if you act like a contract is enforceable, don’t be surprised if the contract is enforced against you. Here, Abercrombie kept its stores open after January 31, 2020, and it paid the decreased rent amount for two months under the lease amendment agreement. Simon accepted the lower rent payments, and Abercrombie proceeded with its store relocation plans and closures contemplated by the lease amendment agreement. Then, lawyers for the two parties had their lawyers work on the lease amendments.
An Email Can Prove the Agreement
Another important lesson from this case is that emails can explain the parties’ intentions. In this case, the Court looked at the emails between lawyers for Abercrombie and the lawyers for Simon, and concluded those communications confirmed the parties’ intentions to enter into the lease amendment agreement. Given all this evidence, the Court concluded that Simon had presented prima facie evidence of an enforceable agreement.
Injunctions Aren’t Easy to Get
There was one additional huge lesson from this case. Ordinarily, a party cannot get an injunction, if there is an adequate remedy at law, meaning money would solve the problem. Simon had to prove that
“remedies at law were inadequate, thus causing irreparable harm pending resolution of the substantive action.” Irreparable harm is that harm which cannot be compensated for through damages upon resolution of the underlying action. In other words, if Simon could sue and get money damages at trial, then Simon would have an adequate remedy at law and could not be awarded an injunction.
Simon presented an expert witness named John Talbott, who is a professor at Indiana University’s
Kelley School of Business. Talbott testified that shopping centers derive their success from a mix of tenants, and the stores agree to be open when the malls are. Talbott explained that the sudden and permanent closure of Abercrombie stores would cause harm to Simon’s malls that would not be remedied by a money judgment for lost rent, and that it would be virtually impossible to measure, let alone compensate Simon for the lost prestige Simon would suffer if more than 40 Abercrombie stores closed across 40 Simon malls. The Court noted that permanent closures would have a harmful effect on Simon and other mall tenants, and would impose significant stress on Simon to retain and attract other tenants. Talbott believed that Abercrombie’s decision to abandon and close its stores could not be
accurately determined and calculated; however, he indicated that the damages Simon would suffer without an injunction would be substantial and beyond what could be remedied merely by Abercrombie’s payment of a judgment for unpaid rent.
For these many reasons, Simon v. Abercrombie is a good case for commercial landlords, tenants and property managers to ponder.