Whole Foods Market Group, Inc. v. Wical Limited Partnership

Citation: Not availableDocket: Civil Action No. 2017-1079

Court: District Court, District of Columbia; January 22, 2018; Federal District Court

Original Court Document: View Document

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Whole Foods Market Group, Inc. initiated a breach of contract lawsuit against Wical Limited Partnership, its commercial landlord, under case number 17-cv-01079-RCL. The plaintiff's Amended Complaint seeks relief through four counts. Wical filed a motion to dismiss all counts, which the Court partially granted and partially denied after reviewing the motion, opposition, reply brief, relevant law, and the case record.

In examining the motion to dismiss, the Court highlighted key lease provisions between Whole Foods and Wical. These include:

1. **Business Conduct (Paragraph 4(F))**: Whole Foods is required to operate its business consistently with its other stores, maintain the premises, and prevent waste or injury, except for reasonable wear and tear.

2. **Renovation (Paragraph 4(G))**: The lease permits Whole Foods to close the premises for necessary renovations, with closures limited to 60 days over any three-year period.

3. **Repairs and Maintenance (Paragraph 5(A))**: Whole Foods is responsible for both structural and non-structural repairs, ensuring compliance with applicable governmental requirements.

4. **Alterations (Paragraph 7(A))**: Whole Foods must obtain prior written consent from Wical for any exterior or structural alterations, while non-structural changes can be made with prior notice of plans or drawings.

The Court's analysis will consider these provisions and the well-pleaded facts in favor of Whole Foods during the motion to dismiss evaluation.

Consent from the Landlord shall not be unreasonably withheld. Whole Foods filed the lease under seal, but this Memorandum Opinion references only those lease provisions cited in motions not under seal. If either party faces delays in performance (excluding payment obligations) due to unforeseen circumstances (like acts of God, strikes, governmental regulations, adverse weather, etc.), such performance shall be excused for the duration of the delay, provided the delayed party notifies the other and makes good faith efforts to resolve the delay. Whole Foods's lease with Wical for the property at 2321 Wisconsin Avenue, NW, Washington D.C., extends through January 31, 2021, with options for three additional five-year terms. Whole Foods has consistently paid rent and operated its store from 1996 until 2017, when it received two ordinance violations for rodent issues, necessitating closures. Following a second violation on March 13, 2017, Whole Foods sought a permanent solution and determined substantial renovations were necessary, leading to the store's closure for demolition. In late March 2017, Whole Foods communicated with Wical about the situation, notifying them that the rodent issue was resolved but that a significant rebuild was required. They indicated that the reopening timetable was uncertain, as permitting would take approximately four months. Whole Foods planned to modernize the store significantly, including layout improvements, equipment replacements, and system upgrades, to align with similar stores in the area.

To obtain a permit for a project in the District of Columbia, Whole Foods must secure approval from the property owner, Wical. Whole Foods requested this approval on May 23, 2017, and Wical consented on May 26, 2017, coinciding with the completion of construction plans. Whole Foods estimates that, pending necessary approvals, the store's interior could be rebuilt in six months and has already invested approximately $1 million in the project. However, Wical issued a Notice of Default on May 15, 2017, demanding Whole Foods reopen within fifteen days to avoid lease termination, which Whole Foods contends was an attempt to increase rent. Whole Foods sent its own Notice of Default to Wical on July 14, 2017, claiming Wical's refusal to consent to renovations breached their contract. Subsequently, Whole Foods filed suit on August 4, 2017.

The legal standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires that a complaint present sufficient factual matter to state a plausible claim for relief. The court must accept all allegations as true and provide the plaintiff with favorable inferences. A claim is plausible if it permits reasonable inferences of the defendant's liability. The complaint must include more than mere accusations to survive dismissal. The court may consider the factual allegations in the complaint, relevant documents, and judicially noticeable matters.

In Count I of Whole Foods's Amended Complaint, they seek a declaratory judgment asserting that they did not breach the lease by remaining closed for over 60 days and that Wical's Notice of Default is invalid. The court's analysis will focus on the lease agreement, applying established contract law principles. Under the Declaratory Judgment Act, a court may declare the rights of parties in a case of actual controversy, requiring the plaintiff to demonstrate an imminent injury from the defendant that can be remedied by judicial relief.

Wical argues for the dismissal of this count based on the lease's terms, specifically Paragraph 4(G), which allows Whole Foods to close the store for modernization up to a maximum of 60 days over any three-year period. Whole Foods has been closed since March 2017, exceeding this limit, which Wical claims constitutes a lease breach. Whole Foods contends its closure is justified under Paragraph 4(F), which requires continuous operation and maintenance of store quality, but Wical counters that this obligation is subject to the provisions of the lease, including the 60-day limit in Paragraph 4(G). Additionally, Paragraph 18(A) provides for an extended cure period not exceeding 60 days, but does not allow extensions for failure to operate continuously.

Whole Foods cites the force majeure clause in Paragraph 30(A) to excuse its extended closure, which outlines circumstances beyond control, such as acts of God and labor troubles. The clause does not explicitly exclude the 60-day closure requirement. Whole Foods claims its closure was necessitated by persistent rodent issues, despite having a pest control program since 2014, leading to two violation notices from the District of Columbia. After the second notice, Whole Foods was advised by contractors that inferior building construction contributed to the problem, necessitating a complete gutting of the store's interior. The Court finds that Whole Foods successfully pleads that the closure was due to circumstances beyond its control, specifically the rodent problem.

Ongoing delays in reopening are excused under the contract due to 'plan approval delay' as outlined in Paragraph 30(A). Whole Foods needed permits from the District of Columbia to rebuild the store's interior, and potential delays in permit approvals due to a backlog are beyond its control and thus excusable. Additionally, the District requires property owner consent for plans before permitting can commence. Whole Foods claims Wical's refusal to consent contributed to these delays. Wical counters that Whole Foods only requested consent on May 23, 2017, provided construction plans on July 6, 2017, and did not submit a complete set of required documents under Paragraph 7(A), which includes plans, liability insurance certificates, and proposed contractors.

In response, Whole Foods asserts that it acted promptly by engaging an architect and expediting vendor services, indicating its diligence was not the cause of delays. The Court addresses Wical’s concern regarding the incomplete submission of documents, emphasizing that while Paragraph 7(A) requires consent for structural alterations, Whole Foods only needs to provide a complete set of documents for structural changes, not for non-structural changes. Whole Foods plans to modernize the store layout and replace various systems, but these alterations, although significant, do not qualify as structural changes. The Court refers to Black’s Law Dictionary, defining structural alteration as a significant change that creates a different building. The Court concludes that the replacement of systems, while major, does not meet the definition of a structural alteration.

The Court determines that Whole Foods' proposed alterations will not fundamentally change the structure of the grocery store. Whole Foods plans to modify the HVAC and plumbing systems, upgrade equipment, and replace demolished drywall and ceiling tiles, maintaining the store's appearance and functionality. Although Wical argues that the architectural plans label some changes as "structural," the Court finds this classification non-dispositive, as it is unclear whether the architect's use of the term aligns with the lease's definition. Viewing the facts favorably for Whole Foods, the Court classifies the changes as non-structural and concludes that Whole Foods was not obligated to provide all plans to Wical before seeking consent, thus eliminating grounds for delay in reopening. The store's closure is attributed to issues beyond Whole Foods’ control, such as a rodent problem and permit delays, excusing them from the lease's 60-day closure stipulation under Paragraph 30(A). Whole Foods' claim for a declaratory judgment regarding non-breach of the lease and invalidity of Wical’s Notice of Default will proceed, as sufficient facts are alleged to survive a motion to dismiss.

In Count II, Whole Foods seeks damages for Wical's breach of the implied covenant of good faith and fair dealing, asserting that the notice of default undermines the lease's intent. Wical argues for dismissal, claiming that Whole Foods’ allegations are merely reiterations of the breach of contract claim in Count I. However, the Court notes that Whole Foods is not required to choose between different remedies at the pleading stage, as the claims in Counts I and II seek different outcomes (declaratory relief versus damages), allowing Count II to stand.

Wical contends that its claim should be dismissed as it acted within its contractual rights by issuing a notice of default due to Whole Foods' alleged breach for remaining closed beyond 60 days. Wical asserts that a breach of the implied covenant of good faith cannot occur if actions are compliant with the contract. However, the court previously determined that Whole Foods did not breach the contract, as its closure was justified under Paragraph 30(A) of the lease, which negated Wical's right to issue a notice of default.

Under D.C. law, to establish a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must show bad faith or arbitrary behavior. Whole Foods sufficiently alleged such conduct, asserting that Wical issued the notice of default to escape the lease and increase rent. Consequently, the court denied Wical’s motion to dismiss this claim.

Whole Foods seeks injunctive relief and specific performance regarding Wical's alleged breach of the covenant. It requests the court to extend the cure period and to compel Wical to consent to a permit application. Wical's argument against the breach claim fails, as Whole Foods met its burden. However, Wical argues that specific performance is inappropriate if there is no clear entitlement to the requested relief, particularly regarding permission for permits that could significantly delay reopening the store.

The court found Whole Foods has a right to specific performance related to the store closure under Paragraph 30(A), thereby permitting the court to require Wical to excuse the closure. Nonetheless, Whole Foods' request for specific performance regarding the permit application is dismissed, as it did not demonstrate entitlement to that specific relief.

Whole Foods argues that Wical should be compelled to consent to its permit application based on Paragraph 27(J) of the lease, claiming Wical is unreasonably withholding consent. However, the Court clarifies that Paragraph 27(J) only applies when either party needs approval from the other under the lease terms, which is not the case here since the only relevant consent requirement is found in Paragraph 7(A). This paragraph specifies that only structural changes require landlord consent, while tenant may make non-structural alterations without prior consent. The Court has determined that Whole Foods' proposed changes are non-structural, thus negating the need for Wical's consent under the lease.

Regarding Whole Foods's request for injunctive relief, Wical contests that Whole Foods has not demonstrated it will suffer irreparable harm without an injunction. The Court considers factors for granting a permanent injunction, including success on the merits, the potential for irreparable injury, and the balance of hardships. Whole Foods claims harm beyond economic loss, citing damage to its goodwill, reputation, and property rights, which the Court finds sufficient to establish irreparable harm. Additionally, the unique characteristics of property rights imply that a tenant's possession is irreparable. Whole Foods has also demonstrated a likelihood of success on its breach-of-contract claim, and Wical does not dispute the balancing of hardships or public interest factors. Consequently, the Court concludes that Whole Foods's interests in retaining the lease outweigh Wical's obligations under the contract.

The Court ultimately denies Wical's motion to dismiss Count III, except for Whole Foods's request regarding Wical's consent to the permit application under Paragraph 27(J).

Count IV addresses Whole Foods' claim for declaratory relief and damages against Wical for breach of contract regarding specific lease provisions. Whole Foods asserts that Wical breached the lease by: (1) withholding consent for permit applications, (2) failing to acknowledge Whole Foods' right to excuse delays beyond its control, and (3) interfering with Whole Foods' possession and quiet enjoyment of the store. The court has previously ruled that Wical did not breach the lease by withholding consent for non-structural alterations and recognized that Whole Foods was excused from its obligation to re-open within 60 days.

Whole Foods' new claim revolves around Wical's interference with its possession rights by refusing to consent to permit applications and threatening lease forfeiture. Whole Foods argues that this refusal has hindered its ability to obtain necessary permits and re-open the store. Wical contends that Whole Foods violated its obligations under the lease, including the failure to re-open on time, operate the store to a specified standard, and submit complete architectural plans. The court has previously dismissed claims regarding the first and third violations.

Regarding the second claim of operational standards, while Whole Foods submitted plans intended to enhance store quality, Wical's refusal to consent is argued as justified since Whole Foods did not meet its operational commitments. However, the court notes that a breach of the covenant of quiet enjoyment requires significant disturbance, and Wical's lack of engagement with Whole Foods regarding the plans constitutes interference with Whole Foods' possession. Whole Foods continues to pay rent despite being unable to operate due to Wical's non-responsiveness to its requests for consent on the architectural plans.

Whole Foods has presented sufficient facts to support a breach of the covenant of quiet enjoyment. The Court examined whether Whole Foods can terminate the lease due to Wical’s breach. The lease specifies termination conditions related to bankruptcy (Section 17) or Whole Foods’ default (Section 18), but does not authorize termination for Wical’s breach. Whole Foods argues for termination based on constructive eviction, which constitutes a breach of the covenant of quiet enjoyment. Given that Whole Foods has sufficiently stated a claim for quiet enjoyment, it also supports a claim for constructive eviction, allowing it to survive the motion to dismiss.

The Court denied Wical’s motion to dismiss Counts I, II, and III of Whole Foods’s Amended Complaint, except concerning Whole Foods’s request regarding consent for the permit application under Paragraph 27(J), which the Court granted dismissal. Count IV was also denied, except for the request relating to Paragraph 27(J) of the lease, for which dismissal was granted. A separate order will follow this Memorandum Opinion.