Whole Foods Update - Renewed Hope
Updated: Dec 27, 2019
The path of the Whole Foods eviction case became much clearer after U.S. District Judge Royce Lamberth opined clearly and firmly in a memorandum filed January 24th 2018. The opinion followed months of court silence, during which the only action was the landlord's (Wical's) attempt to dismiss Whole Foods complaints for the eviction notice.
While the only substantive accomplishment of the opinion was to deny Wical's attempt to dismiss the complaint - which doesn't take the case very far - the judge revealed how he might rule in the case later on. Wical's defense hinges on their claim that under the lease the store cannot be closed for more than 60 days. Whole Foods has been closed since March 2017. The judge seemed to chide Whole Foods for using the wrong legal justification for closing the store longer (they used a standard of operation clause), but then demonstrated how the boilerplate "force majeure" clause in the lease is sufficient justification for the closure. The rodent problem falls under force majeure. In other words, the judge has stated firmly that Whole Foods did not breach the lease by remaining closed for more than 60 days. Much of Wical's case on other points falls apart based on the opinion that Whole Foods was not in default when Wical issued the eviction notice.
In addition, the judge ruled that Whole Foods does not need to (and never did need to) get approval from the landlord for their renovation plans. One of Wical's claims is that the timing and completeness of the plan submission was a lease violation. Whole Foods argues their plans were submitted and they are barred from proceeding unless the court compels Wical to agree to the plans. The judge makes this argument moot by demonstrating that the plans are not "structural" and only "structural" plans require landlord approval. This opinion appears to have removed this more complex debate from the case entirely. Yet, it relies on a definition of "structural" which the judge acknowledged in another somewhat chiding manner that neither party even attempted to define. If Wical attempts to pursue this in the litigation, the entire case could come down to a definition of "structural" - an interesting twist.
In another interesting twist, Whole Foods's claim that Wical was the one who breached the lease was upheld by the judge! He states that the eviction notice, which was heretofore shown as invalid, was a breach of the lease covenant of good faith and fair dealing, as well as the tenant's "right to quiet enjoyment." This is a pretty serious charge that the judge is upholding in a simple denial of dismissal memo, especially since Whole Foods is claiming that they did it to squeeze more rent out of them. On top of that, Judge Lamberth ruled that Whole Foods did in fact incur injuries of irreperable harm - not only economic, but also injury to "its goodwill and reputation in the community" (an indirect reference to all of us in Glover Park). He states that the public interest favors denying Wical's attempt the break the lease (i.e. - GET THE STORE OPENED!, if I read between the lines). This opinion opens the door for potential litigation over Whole Foods seeking to withhold rent, seeking monetary damages, and who knows what else), though these were not specifically addressed in the memo. Whole Foods even takes it a step further and threatens that they have the right to terminate the lease and walk away due to Wical's breach. The judge did not oppose this claim and supports Whole Foods on the theory of "constructive eviction" even if the lease doesn't explicitly give them the right to do so.
My opinion? This memo signals the direction of the litigation, and is favoring Whole Foods. Chances are the landlord started weighing out-of-court settlement options after getting Judge Lamberth's opinion. Wical came out very strong on the attack and they might keep at it, but their case is not the slam-dunk they thought it was anymore. Further, the "constructive eviction" theory supported by the judge means Whole Foods could potentially have a right to walk away leaving the store demolished and the landlord seeking a new tenant! Oh my.
See prior blog posts on the issue: