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Interstate Realty Co., L.L.C. v. Sears Roebuck & Company

2010 WL 1220966 (U.S. Ct. App. 3rd Cir. 2010) (Unpublished)

LEASES; EXCLUSIVE USES — When interpreting an exclusive use provision in a lease, where the phrase, “including, without limitation” is used, it is not intended that such a phrase makes the category of covered items open-ended, only that other items, similar to those listed, will also be protected.

By reason of a dispute over an exclusivity provision in a lease, a landlord claimed that “it was unable to lease space in [its] mall to a prospective tenant.” It sued its tenant, alleging tortious interference with its prospective economic advantage and contractual rights, as well as breach of contract. It also sought a judgment for its interpretation of the exclusivity provision in its tenant’s lease. The United State District Court granted declaratory relief, but dismissed the damage claims with prejudice. The parties appealed, but the United States Court of Appeals agreed with the lower court’s order in its entirety. The lease’s exclusivity provision stated that the “[p]remises may be used by [the tenant] for the sale, servicing and storing of merchandise, [and] all other items and services normally sold in [Tenant’s] Hardware Stores.” The limitation further provided that, “with certain exceptions, [the Landlord] would not lease to a tenant that would use the premises ‘for the sale of certain items or services which would normally be sold in a [Tenant’s Hardware Store] ... including, without limitation, the sale of hardware materials, tools and supplies, paint, plant, and power and non-power lawn and garden equipment, tools and supplies.”

As part of its national program, the tenant’s location was converted into its branded Appliance and Hardware store. Within two years, the store was selling washers, dryers, refrigerators, dishwashers, and other household appliances and fixtures.

A prospective tenant approached the landlord with a proposal to open an appliance store to sell washers, dryers, refrigerators, and similar items. It asked the landlord to obtain a letter from the tenant who had the exclusive use provision in its lease and to obtain acknowledgment from that tenant that the appliance store could be opened. The existing tenant refused to grant consent and additional negotiations were unsuccessful. The prospective tenant located elsewhere.

The lower court found that while the existing tenant’s lease permitted the sale of washers, dryers, and other appliances in the tenant’s premises, the exclusive use restriction description of the kinds of items that could not be sold by others in the tenant’s hardware stores did not encompass washers, dryers, and other appliances. Essentially, the restricted items were “tools and supplies, paint, plants, power and non-power lawn and garden equipment, tools and supplies.” The lower court did not believe that use of the phrase “including, without limitation,” made the category of covered items open handed, only that other items, similar to those listed items would also be protected.

The United States Court of Appeals refused to upset the lower court’s holding. With respect to damage claims, the Court of Appeals concluded that because the tenant with the exclusive use rights “had not acted with malice, [the landlord had] failed to demonstrate a genuine issue of material fact” to support a claim for damages. Here, the landlord never told the tenant that the prospective tenant was willing to explore various compromises regarding the exclusivity clause, nor did it share those resolutions proposed by the existing tenant with the respective tenant. The Court of Appeals agreed with the lower court that there was no genuine fact issue as to the existing tenant’s alleged breach of the implied covenant of good faith and fair dealing. It remembered the same conclusion that the existing tenant’s conduct gave “no suggestion of ‘bad motive or intention,’ proof of which ‘is vital to an action for breach of the covenant.’”


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