Gumwood HP Shopping Partners, L.P. v. Simon Prop. Grp., Inc.

GUMWOOD HP SHOPPING PARTNERS, L.P., Plaintiff, v. SIMON PROPERTY GROUP, INC., Defendant.

Case No. 3:11-CV-268 JD

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

March 18, 2016

OPINION AND ORDER

This is an antitrust case in which the developer of an upscale shopping center asserts that the defendant, the largest public real estate company in the country, engaged in anticompetitive tactics to coerce retailers to stay out of the new development and instead sign leases at its nearby mall. The plaintiff, Gumwood HP Shopping Partners, L.P., was developing an outdoor shopping center in Mishawaka, Indiana, named Heritage Square, where it hoped to attract high-end retailers such as Ann Taylor Loft, Coldwater Creek, and Chico's. The defendant, Simon Property Group, Inc., owned an established mall less than a mile away, known as University Park Mall. Around the same time that Gumwood was developing Heritage Square, Simon was redeveloping a portion of University Park to add an outdoor component that also hoped to attract some of the same high-end retailers. According to Gumwood, Simon threatened certain retailers, in particular Ann Taylor, that if they opened stores at Heritage Square instead of University Park, Simon would terminate their leases in some of Simon's best properties elsewhere in the country. Though Ann Taylor initially signed a lease at Heritage Square, it never opened a store there, and it eventually signed a lease and opened a Loft store at University Park instead.

In this action, Gumwood asserts that Simon's conduct constituted an unlawful tying arrangement, so it has asserted claims under Sections 1 and 2 of the Sherman Act. Discovery is now closed, and the parties have filed cross-motions for summary judgment. Simon has also filed two motions to strike and a motion for oral argument. For the following reasons, the motions for summary judgment and the other ancillary motions are each denied.

I. FACTUAL BACKGROUND¹

Simon is a real estate entity that owns hundreds of retail properties around the country and around the world. Simon owns various types of shopping centers, including regional and super-regional malls, lifestyle centers, and outlet malls. Regional and super-regional malls are typically large, indoor shopping centers that are anchored by one or more department stores. Lifestyle centers are smaller, outdoor shopping centers that typically include national retail chains mixed with restaurants and possibly entertainment outlets like a movie theater. Outlet centers typically house national retailers selling reduced-price versions of their products. While malls and lifestyle centers typically draw customers from five to fifteen miles away, outlet centers may draw customers from up to seventy-five miles away.

Among Simon's properties are Dadeland Mall, located in Miami, Florida, and Lenox Square, in Atlanta, Georgia, both of which are super-regional malls. Simon also owns an outlet center known as Woodbury Common Premium Outlets in New York, which is regarded as one of the premier outlet malls in the country. Simon also owns University Park, a super-regional mall in Mishawaka, Indiana. University Park opened in 1979, and has nearly one million square feetof leasable space. Though it is located near a dense shopping area with strip malls, standalone stores, and plazas with big-box retailers, University Park is the only mall in the area. In 2006, the Marshall Field's department store, which was one of University Park's anchors, closed its store. Rather than replace the store with another department store, Simon demolished the building and constructed an outdoor "streetscape" with outward facing retail stores. In essence, this addition was a lifestyle center appended to the existing mall.

Beginning around 2005, Gumwood began developing Heritage Square, a lifestyle center located less than a mile from University Park. Heritage Square was anchored by a grocery store, and it also included retail space that it hoped to fill with national retailers like Ann Taylor, Coldwater Creek, Chico's, Lane Bryant, Talbot's, and Barnes and Noble. In April 2006, after negotiations with Gumwood's leasing agent, Ann Taylor internally approved a proposed deal to open one of its Loft stores at Heritage Square. After further negotiations, Ann Taylor executed a ten-year lease for Heritage Square on June 14, 2006, and Gumwood executed the lease shortly thereafter. As is common in the industry, the lease included certain contingencies based on other retailers having signed leases at the shopping center. In particular, the lease stated that Ann Taylor would not be required to open its store at Heritage Square unless certain other retailers had also signed leases, including Coldwater Creek, Brooks Brothers, Ruth's Chris Steak House, and Martin's Super Market. If those requirements were not met but Ann Taylor chose to open its store anyway, it would be entitled to pay rent at a reduced rate.

Immediately after the lease was executed, Ann Taylor requested to rescind the lease, indicating that it was concerned about the co-tenancy provision. Gumwood refused to rescind the lease, but the parties agreed to an amendment that altered the co-tenancy provision. Under the amendment, Ann Taylor would not be required to open the Loft store at Heritage Square or topay rent until each of Coldwater Creek, Brooks Brothers 346 (a new concept store being tested by Brooks Brothers), White House/Black Market, and Martin's Super Market had also opened. The parties executed that amendment in mid-August 2006.

Around this same time, Simon learned that Ann Taylor signed a lease at Heritage Square. That came as a surprise to Simon, which believed that Ann Taylor had already orally committed to coming to University Park, and which viewed the Loft store as important to the success of the new lifestyle center component of University Park. Gumwood alleges that, in response, Simon began to impose a tying arrangement by which it threatened to cancel Ann Taylor's leases at Dadeland, Lenox, and Woodbury (where it had very successful stores whose leases were about to expire) if Ann Taylor opened its store at Heritage Square or did not come to University Park. An internal Simon document that recaps a meeting with Ann Taylor's representatives on August 15, 2006, outlines the following strategy for Simon's business with Ann Taylor: "Create leverage with renewals on more mature accounts . . . . We need a positive decision on University Park before we will move forward with any key renewals. Woodbury and Lenox would be prime centers to kill if the negotiations go south." [DE 129-8].

In an internal email describing that meeting, one of Simon's negotiators wrote:

[T]hey [Ann Taylor] do have an executed lease, with [H]eritage, however, the developer has yet to satisfy the co tenancy. . . . We are putting the full court pressure on all others who are interested in the market[.] I was very clear that their decision can and will jeopardize our willingness to proceed on new deals and renewals.

[DE 129-33]. The following month, that same individual wrote in another internal email:

I will still help where needed but in essence DS [David Simon, Simon's CEO] is trying to meet with Kay Krill [Ann Taylor's CEO]. I don't believe John [Scotti, Ann Taylor's negotiator] has told Kay the severity of the situation. If they go ahead with Heritage we're going to cancel Woodbury and Dadeland. Lose a pinky - take an arm!

[DE 129-34 (punctuation and capitalization modified for clarity)]. In addition, Simon decided at that time to begin negotiating its leases with Ann Taylor on a portfolio basis. Thus, it negotiated the fifty-plus new leases or lease renewals that were pending as a single package, with the understanding that none of the leases would be final until the entire package had been agreed on. Accordingly, it held certain lease agreements that had already been negotiated until the entire portfolio negotiations were complete.

Meanwhile, while its discussions with Simon were ongoing, Ann Taylor took possession of the premises at Heritage Square in August 2006 and began construction of the store with the goal of opening in time for the Christmas shopping season. By taking possession of the premises, Ann Taylor lost its right to terminate the lease after the first year if Heritage Square had not yet satisfied the co-tenancy provisions. However, after about two weeks of construction, during which it incurred over $100,000 in construction costs, Ann Taylor abruptly halted construction. Ann Taylor had no ability to terminate the lease, and it gave no definitive indication to Gumwood as to its future intent, but the premises began to sit idle, with no efforts being made towards the store's opening. In addition, in December 2006, Brooks Brothers decided that it was going to discontinue its "346" concept stores, so it gave notice to Gumwood that it was not going to open at Heritage Square. Because the "346" store was a required co-tenant under Ann Taylor's lease, that meant that Gumwood would never be able to satisfy the co-tenancy provision and that Ann Taylor would never be required to open its store at Heritage Square. It could still choose to do so, though, and pay rent at a reduced rate.

Then, in April 2007, Ann Taylor initiated discussions with Gumwood to negotiate a second amendment to its lease at Heritage Square. It indicated that it wished to immediately resume construction and open the store at Heritage Square. The lease amendment would haveeliminated Brooks Brothers 346 as a required cotenant, and would have called for Ann Taylor to resume construction and open its store. The amendment would have also provided an additional construction allowance for Ann Taylor. However, on April 20, 2007, after negotiating and drafting the terms of the amendment, Ann Taylor decided not to sign it, and progress again stalled. Subsequently, in July 2007, Ann Taylor...