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Rosenthal v. J.C. Penney Corporation, Inc.

United States District Court, D. Maine

August 4, 2017

ROBERT and ANDREW B. ROSENTHAL, in their capacity as trustees of the WATERVILLE SHOPPING TRUST Plaintiffs,
v.
J.C. PENNEY CORPORATION, INC., Defendant.

          ORDER ON DEFENDANT'S MOTION TO DISMISS

          JON D. LEVY U.S. DISTRICT JUDGE.

         Robert and Andrew B. Rosenthal, in their capacity as trustees of the Waterville Shopping Trust (“WST”), have filed suit against J.C. Penney Corporation, Inc., seeking declaratory and injunctive relief with respect to a commercial lease between WST and J.C. Penney. ECF No. 10-2. J.C. Penney moves to dismiss the Complaint. ECF No. 11. For the reasons that follow, I grant the motion.

         I. FACTUAL BACKGROUND

         The following account is based on the factual allegations in the Plaintiffs' Complaint. WST and J.C. Penney entered into a commercial lease agreement in 1983 under which J.C. Penney leases retail space in a shopping center owned by WST in Waterville, Maine. The lease had a 15-year initial term, but included five options under which J.C. Penney could extend the lease term for five years each. J.C. Penney has exercised four of these options, and is expected to also exercise the fifth, which will extend the lease to 2024.

         In 2015, WST was presented with an opportunity to construct a new set of buildings within the shopping center grounds, which would house a restaurant and a retail store. WST expects this opportunity to be economically beneficial to it, J.C. Penney and the shopping center's other tenants, and the city of Waterville.

         J.C. Penney's lease contains a clause that requires WST to obtain J.C. Penney's approval before constructing any new building or structure within the shopping center. The lease states:

Without the prior approval of Tenant there shall not be constructed within any part of the Entire Premises (1) any facilities for the parking of motor vehicles other than at ground level in the locations shown therefor on Exhibit B hereto; (2) any building or structure except within the building areas shown on said Exhibit B; or (3) any improvements, or any replacements of, or alterations or additions to, existing improvements which do not conform in general exterior architectural treatment (including the appearance of construction material used) to the other portions of the Shopping Center or, in the case of the replacement of an improvement, to the improvement which is being replaced.

ECF No. 4-1 at 65. WST sought J.C. Penney's approval, but J.C. Penney refused to consent to the construction. J.C. Penney did, however, offer to give its consent in exchange for additional options to extend the 1983 lease for two additional 5-year terms.

         Under the terms of the 1983 lease, J.C. Penney's current rent is significantly less than the market value for its leased space. WST asserts that further extensions of the current lease terms would be economically untenable for it. WST further asserts that J.C. Penney is withholding its consent to the new construction for the sole purpose of using its leverage to extract additional favorable extensions of the 1983 lease, and that J.C. Penney does not have any legitimate business reason for opposing the new construction.

         WST seeks a declaratory judgment interpreting the 1983 lease term that gives J.C. Penney the authority to withhold consent to new construction to include an implied term that such consent may not be unreasonably withheld, which means, according to WST, that J.C. Penney may not withhold its consent for no reason, for a pretextual reason, or for the purpose of extracting an economically unjustified extension of the lease. WST also seeks injunctive relief to prevent J.C. Penney from withholding approval of the specific construction project described in the Complaint.

         II. LEGAL STANDARD

         To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint “must contain sufficient factual matter to state a claim to relief that is plausible on its face.” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotation marks and alterations omitted). The court should accept all well-pleaded facts as true, while ignoring conclusory legal allegations. Id. All reasonable inferences should be drawn in favor of the non-moving party. Id. at 16. The complaint must contain facts that support a reasonable inference “that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Determining the plausibility of a claim is a context-specific task that requires the court “to draw on its judicial experience and common sense.” Saldivar, 818 F.3d at 18 (quoting Iqbal, 556 U.S. at 679) (quotation marks omitted). The burden of demonstrating that the complaint does not state a claim for which relief can be granted is on the Defendant. See 5B Charles Alan Wright & Arthur R. Miller et al., Federal Practice and Procedure § 1357 (3d ed. 2017 Update).

         III. DISCUSSION

         WST asserts that the lease must be regarded as containing an implied covenant of “good faith and fair dealing for all commercial engagements including commercial real estate leases.” ECF No. 12 at 13. WST seeks an equitable determination that J.C. Penney's refusal to consent to the new construction violates the terms of the lease when the lease is read in the context of that implied covenant. J.C. Penney ...


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