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Redner's Markets, Inc. v. Joppatowne G.P. Ltd. Partnership

United States District Court, Fourth Circuit

October 21, 2009

REDNER’S MARKETS, INC., Plaintiff
v.
JOPPATOWNE G.P. LIMITED PARTNERSHIP, Defendant

MEMORANDUM OPINION

Benson Everett Legg, United States District Judge

I. Introduction

Plaintiff, Redner’s Markets, Inc. (“Redner’s”), operates a chain of grocery stores, one of which is located in the Joppatowne Plaza Shopping Center. In this case, Redner’s sues its landlord, Joppatowne G.P. Limited Partnership (“Joppatowne”), for breach of a restrictive covenant found in its lease. This Court has diversity jurisdiction over the dispute because Redner’s and Joppatowne are citizens of different states. See 28 U.S.C. § 1332. Following discovery, the case was tried before the Court, sitting non-jury. This Memorandum states the Court’s findings of fact and conclusions of law as is required by Federal Rule of Civil Procedure 52. For the reasons stated herein, the Court concludes that Joppatowne has breached the Restrictive Covenant. Further proceedings are required, however, to determine the full extent of the breach and to award relief.

II. The Dispute

Redner’s is a Pennsylvania corporation that operates 40 or so grocery stores in Pennsylvania, Maryland, and Delaware. Redner’s stores sell the type of items that one would typically find in a grocery store or supermarket, but at lower prices made possible by the company’s no-frills, food warehouse approach. Joppatowne owns and manages the Joppatowne Plaza Shopping Center (“Shopping Center”), which is located in Joppatowne, Maryland at the intersection of Maryland Route 40 and Joppa Farm Road.

Following extensive negotiations conducted by real estate experts, Redner’s and Joppatowne, on November 23, 2005, executed a 61-page, 20-year lease (the “Lease”) involving approximately 54, 000 square feet of retail space. On November, 20, 2006, the parties executed an amendment to the Lease that authorized Redner’s to build and operate a small gas station on the Shopping Center’s parking lot.[1] Both the grocery store and the gas station are currently open for business.

The dispute concerns three sections of the Lease: Article XIII (Restrictive Covenants), Article IV (Rent), and Article XX (Default by Tenant or Landlord). Briefly stated, Redner’s contends that Joppatowne violated the Restrictive Covenant by permitting an Amish Farmer’s Market (the “Market” or the “Farmer’s Market”) that directly competes with Redner’s. Joppatowne denies that the Market is a prohibited use. Moreover, pointing to Article IV, Joppatowne contends that Redner’s cannot enforce the Restrictive Covenant because it is in breach of its obligation to pay percentage rent on gasoline sales. Finally, Joppatowne maintains that Redner’s has failed to satisfy the notice and opportunity to cure requirements of Article XX. Absent the required notice, no event of default recognized by the Lease can have occurred, Joppatowne asserts.

III. The Amish Farmer’s Market

The departure of a major tenant created a substantial vacancy in the Shopping Center. The vacancy attracted the attention of Brian Miller, an entrepreneur who operates a large, successful flea and farmer’s market in the North Point Plaza Shopping Center in Dundalk, Maryland. Miller was interested in opening a second flea market and farmer’s market at Joppatowne.

On October 21, 2009, after negotiations, Joppatowne entered into a 10-year lease with, JTF, LLC (“JTF”), a Maryland limited liability corporation that Miller created to do business at the Shopping Center.[2] Miller is JTF’s sole employee. All told, JTF leases approximately 108, 000 square feet. This space is divided between the flea market (roughly 96, 000 square feet) and the Amish Farmer’s Market (roughly 12, 000 square feet).[3] The two sections are physically separated by a fence that encloses the Amish Farmer’s Market. A sign at the entrance clearly designates the area inside the enclosure as the “Amish Farmer’s Market.”

Joppatowne and Miller recognized that they were running the risk that the Amish Farmer’s Market would violate the restrictive covenant in Redner’s Lease. To address this risk, Joppatowne agreed to defend and indemnify JTF in the event of a suit. In a letter agreement dated October 15, 2009, Joppatowne agreed that “in the event of legal action based on the issue of a breach of the restrictive covenants in the Redner’s Lease, ” it would defend and indemnify JTF. Joint Trial Ex. 18.

The Amish Farmer’s Market opened on March 17, 2011. This case focuses on eight stalls that Redner’s claims violate the Restrictive Covenant.[4] Seven of these stalls are located inside the enclosure. Each of the seven is roughly rectangular in shape with counter or display space on the perimeter and working or storage space inside.[5] The enclosure also includes two seating and table areas, as well as a shopping cart pick up and return area.

The seven stalls inside the enclosure are part of a loosely organized group headed by Menno Beiler, who owns and operates Beiler’s BBQ. JTF and Beiler signed an untitled, two paragraph agreement dated December 2, 2010. This document reads in pertinent part: “We agree to pay JTF… for 11, 500 sq. ft…. for duration of 5 year total period…. Each standholder must have liability insurance JTFLLC as rider.” Pl.’s Trial Ex. 1. The term “standholder” refers to the proprietors of the seven stalls or stands within the enclosure. The standholders, all of whom are Amish, do not have a written contract among themselves or with Beiler. They have a handshake agreement among themselves to split the rent to JTF according to the square footages of their respective stalls. Each pays one seventh of the rent owed for the commonly shared space within the enclosure. The common space includes everything outside the perimeters of each stall, including the aisle space and the seating areas. Beiler collects the rent and pays it to JTF.

Although the Amish Farmer’s Market is promoted as such, each stall is separately owned and operated. Each has its own trade name and signage. The seven stalls within the enclosure are Dutch Delights, Dutch Pantry Fudge, Kreative Kitchen, Lapp’s Fresh Meat, King’s Cheese & Deli, Beiler’s BBQ, and Beiler’s Baked Goods.[6]

The eighth stall, All Fresh Seafood & Produce (“All Fresh”), is located outside the enclosure. The proprietors of All Fresh, John Walters and Mary Roth, are neither Amish nor part of the Beiler group. All Fresh has a separate lease with JTF.[7] Although All Fresh is rectangular in configuration, the rectangle is not enclosed, and customers have access to a number of display areas and coolers located inside.

Redner’s also challenges two “Vendor Stalls” located outside the enclosure. Information as to the proprietor or proprietors of the two small Vendor Stalls, both of which are located outside the enclosure, is absent from the record.[8]

IV. Procedural History

Although the case was originally filed in the United States District Court for the Eastern District of Pennsylvania, it was transferred to this Court on July 7, 2011. Neither side prayed a jury or filed a dispositive motion. Following discovery, the case proceeded directly to a seven-day bench trial.[9] Because the Lease, particularly Article XIII, is long and complicated, all agreed that the Court would benefit from a thoroughly developed evidentiary record.[10]

Redner’s called eight witnesses at trial:

. Diane Herr, Manager of Real Estate for Redner’s;
. Gary M. O’Brien, Vice President of Retail, Perishable Operations, for Redner’s;
. John Walters, the proprietor of All Fresh;
. Jonathan McGowan, an architect with Kahn Partners. Pursuant to Federal Rule of Evidence 702, the Court accepted McGowan as an expert in the field of architecture;
. Reuben G. King, the proprietor of King’s Cheese & Deli;
. Brian Miller, the owner of JTF;
. Robert Fowler, General Counsel for The Cordish Company, the umbrella company that controls Joppatowne;
. Pamela Cala, a partner in the law firm of Kozloff Stoudt. Ms. Cala participated in the Lease negotiations on behalf of Redner’s; and
. Edward Suarez, a Certified Public Accountant. Pursuant to Rule 702, the Court accepted Suarez as an expert in the field of forensic accounting.[11]

Joppatowne called five witnesses:

. Shellie Curry, an architect at Curry Architects. The Court accepted Curry as a Rule 702 expert in the field of architecture;
. Menno Beiler, the proprietor of Beiler’s BBQ;
. Elmer Lee Lapp, the proprietor of Lapp’s Fresh Meats;
. Larry M. Epstein, a Certified Public Accountant. The Court accepted Epstein as a Rule 702 expert in the field of forensic accounting; and
. Robert Fowler.

V. Analysis of Threshold Legal Issues

a. Joinder of Non-Parties Under Federal Rule of Civil Procedure 19

After the trial was over, Joppatowne filed a Motion to Dismiss, contending that Federal Rule of Civil Procedure 19 mandated the joinder of JTF and the stall owners. Once the Motion was fully briefed, the Court heard argument. For the reasons stated below, the Court will deny the Motion.

Broadly speaking, Rule 19 mandates a two-step inquiry. First, the court must determine whether the absentee is a “required party” as defined by Rule 19(a). If so, the absentee is considered “necessary” to the litigation and must be joined if feasible. When joinder is not feasible, Rule 19(b) requires the court to decide “whether in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” An absentee is considered “indispensable” if the action should not proceed without him. “Where joinder of necessary and indispensable persons would destroy complete diversity, and diversity is the only basis for subject matter jurisdiction, the action must be dismissed.” Dickson v. Morrison, No. 98-2446, 187 F.3d 629, at *4 (4th Cir. July 27, 1999).

Turing to the text of Rule 19(a)(1) (Required Party), a person who is subject to service of process and whose joinder will not deprive the court of subject matter must be joined if:

(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

For purposes of federal diversity jurisdiction, Redner’s is a citizen of Pennsylvania and Joppatowne is a citizen of Maryland. Because the matter in controversy exceeds $75, 000, the requirements of 28 U.S.C § 1332 are satisfied. The joinder of JTF would not defeat diversity because it is a citizen of Maryland. Most of the stall owners are citizens of Pennsylvania, however. Joining them would destroy diversity and deprive this Court of jurisdiction over all claims excepting a minor rent dispute that is of interest only to Joppatowne and Redner’s.[12]

When a required party cannot be joined, Rule 19(b)(When Joinder Is Not Feasible) provides that “the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” The factors for the court to consider include:

(1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the ...

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