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Hilfiker Square, LLC v. Thrifty Payless, Inc.

United States District Court, D. Oregon

January 10, 2018

HILFIKER SQUARE, LLC, an Oregon limited liability company, Plaintiff,
v.
THRIFTY PAYLESS, INC., a California corporation, Defendant.

          OPINION AND ORDER

          Michael J. McShane United States District Judge

         Plaintiff, Hilfiker Square, LLC, brings this breach of contract action against Defendant, Thrifty Payless, Inc. Plaintiff owns a parcel of land in the common area of a shopping center in Salem, Oregon. Defendant operates a Rite Aid store in the same shopping center. In 1984, the parties, or their predecessors in interest, entered into an agreement that forbids placement of buildings and structures in the common area of the shopping center. Defendant now refuses to modify this agreement to allow Plaintiff's construction of a new restaurant. This refusal to negotiate a modification, Plaintiff alleges, is a breach of Defendant's duty to deal in good faith. Because neither the contract nor any extrinsic evidence suggests that the original parties expected that their agreement would necessarily be modified to allow for common area development, no reasonable jury could find that Defendant was required to expressly justify its refusal to approve such development. Even assuming that this expectation existed, Defendant offered Plaintiff three business reasons for its position, none of which a reasonable jury could find lacked a rational basis. The defense motion for summary judgment is therefore GRANTED.

         BACKGROUND

         Plaintiff, Hilfiker Square, LLC (“Hilfiker”), is a limited liability company that owns a small parcel of land located in the northwest corner of Hilfiker Shopping Center (“Shopping Center”) in Salem, Oregon. (Compl. ¶¶ 1, 3.) Defendant, Thrifty Payless, Inc. (“Rite Aid”), is a California corporation that's own and operates a neighboring retail store located within the same shopping center. (Compl. ¶ 2.) The remainder of Hilfiker Shopping Center is owned by nonparty Hilfiker Station, LLC, and consists of several retail stores. (Compl. ¶ 3.)

         Hilfiker Shopping Center, and every parcel located therein, is subject to a recorded Declaration of Restrictions and Grant of Easements (“Declaration”) created in 1984 by Pay Less Drug Stores Northwest, Inc., a predecessor of Defendant, and nonparty Albertson's, Inc. (Rubin Decl., Ex. 6.) The Declaration, amongst other things, restricts where buildings may be constructed. (Rubin Decl. Ex. 6 §§ 1.1(a)-(b), 2.1, 2.2.) Specifically, buildings may not be erected within the “Common Area, ” which is to be used exclusively for “vehicular driving, parking (except that there shall be no double deck parking), pedestrian traffic, directional signals, sidewalks, walkways, and landscaping.” (Rubin Decl., Ex. 6 §§ 1.1(a)-(b), 2.1, 2.2.) These restrictions, the Declaration further instructs, “shall run with the land” and “inure to the benefit of and be binding upon the owners and their successors and assigns . . . .” (Rubin Decl., Ex. 6 §§ 6.1-6.2.)

         In 2010, when Plaintiff acquired its present interest in the Common Area of the Shopping Center, it began lobbying the other occupants for a repeal of the prohibition on Common Area development. (Tokarski Decl., ¶¶ 3-5.) The Declaration includes a general “Modification Provision, ” which provides that modifications are permitted under the following circumstances:

This Declaration may not be modified in any respect whatsoever or rescinded, in whole or in part, except with the consent of the Prime Lessees and the owners of the Parcels containing ninety percent (90%) of the total square footage of existing buildings in the Shopping Center at the time of such modification or rescission, and then only by written instrument duly executed and acknowledged by all of the required owners and Prime Lessees, [and] duly recorded in the office of the Recorder of Marion County, Oregon.

(Rubin Decl., Ex. 6 § 6.5.) Although Plaintiff obtained the consent of every other party subject to the Declaration, as well as building permits from the City of Salem, Defendant has refused to approve any modification of the Common Area restrictions. (Tokarski Decl. ¶ 8.)

         Plaintiff formally and informally requested Defendant's permission to modify the Declaration on at least six occasions. (Berne Decl., Ex. 3 at 17; Roodhouse Decl., Ex. 1 at 1; Tokarski Decl., Ex. 2 at 1-4, Ex. 3 at 1-2; Rubin Decl., Ex. 7 at 2, Ex. 20 at 2-3.) In conjunction with these requests, Plaintiff offered Defendant various incentives and options, including purchasing Defendant's land, remodeling Defendant's store, entering a long-term lease-back with Defendant, and cash payments. (Tokarski Decl. ¶ 5.) On each occasion, Defendant has rejected these offers and declined to approve Plaintiff's proposed modifications. (Tokarski Decl. ¶ 8.)

         Defendant twice provided Plaintiff with specific reasons for rejecting its proposals, expressing concerns about parking utilization and driveway operations, storefront visibility, future development, and the timing of its own potential store remodel.[1] (Rubin Decl., Ex. 13 at 2, Ex. 16 at 44-45.) On other occasions, employees in Defendant's Real Estate Group expressed the view that Rite Aid could arbitrarily reject any proposed modification of the Common Area restrictions. (See, e.g., Berne Decl., Ex. 1 at 58:4-15, Ex. 2 at 36:8-18.) According to a representative of Plaintiff, Defendant's regional Real Estate Director also once stated that “hell would freeze over” before Rite Aid would allow development of the Common Area. (Roodhouse Decl. ¶ 6.)

         To address Defendant's stated concerns about parking, circulation, and visibility, Plaintiff commissioned two studies to analyze the proposed projects' impacts. (Rubin Decl., Ex 16 at 46-62.) The studies concluded that parking, circulation, and visibility would not be materially impacted by the addition of a drive-through restaurant on Plaintiff's parcel. (Rubin Decl., Ex. 16 at 53-54). Defendant later commissioned its own study, which concluded that parking, circulation, and visibility would all be adversely impacted by Plaintiff's proposed development of the Common Area. (Christensen Decl., Ex. A at 1-11.) Plaintiff recently submitted a new development proposal to Defendant, based on a Letter of Intent for a Del Taco franchise, which remains pending at the time of this Opinion and Order. (Roodhouse Decl., Ex. 4.)

         On August 18, 2016, following Defendant's most recent formal rejection, Plaintiff initiated this action for breach of contract in Marion County Circuit Court, alleging that Defendant violated the Declaration's implied covenant of good faith and fair dealing. Defendant removed the case to federal court and moved to dismiss Plaintiff's claim pursuant to Fed.R.Civ.P. 12(b)(6). The Court denied Defendant's motion and the parties completed discovery. The matter is once again before this Court on Defendant's Motion for Summary Judgment.

         STANDARDS

         This Court must grant summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it could affect the outcome of the case and an issue is “genuine” if a reasonable jury could return a verdict in favor of the non-moving party. Rivera v. Phillip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citation omitted). When ruling on a motion for summary judgment, the Court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). If the movant carries its burden, however, then the non-movant must present “specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio ...


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