The Third Circuit Court of Appeals issued a precedential opinion last week when it ruled that a New Jersey real estate developer had standing to pursue antitrust claims against the owner of a nearby ShopRite who engaged in anti-competitive activities designed at blocking the developer from bringing a Wegmans to its property.
In the case of Hanover 3201 Realty, LLC v. Village Supermarkets, Inc., et al., a developer, Hanover 3201 Realty, LLC (“Hanover Realty”), signed a contract with Wegmans to develop a full-service supermarket at its Hanover, New Jersey property. The contract required Hanover Realty to secure all necessary governmental permits and approvals within two years, otherwise Wegmans could walk. Soon thereafter, Village Supermarkets, Inc. (“Village”), the proprietor of a ShopRite supermarket in Hanover (in addition to two dozen others throughout New Jersey), took actions purportedly aimed at frustrating Hanover Realty’s efforts to obtain all requisite government approvals. Such actions included: (i) filing an appeal with the New Jersey Department of Environmental Protection (“DEP”) concerning a flood hazard area permit that had been awarded to Hanover Realty, (ii) challenging a wetlands permit already awarded by the DEP to Hanover Realty, (iii) filing an objection with the New Jersey Department of Transportation suggesting that Hanover Realty, on top of making certain improvements to the intersection near the proposed Wegmans, should be compelled to construct an extensive highway overpass near the project, and (iv) commencing a state court lawsuit to nullify a rezoning approval Hanover Realty had obtained from Hanover Township in order to use the property for retail purposes. These acts, all of which were either largely denied or rejected by the respective administrative or judicial authorities, led Hanover Realty to file a federal lawsuit alleging that the efforts of Village (along with its wholly-owned subsidiary that owns the ShopRite site) were anti-competitive shams designed for no other purpose than to unfairly block its efforts to bring Wegmans to that market space.
After the District Court first dismissed the suit, Hanover Realty appealed and the Third Circuit Court of Appeals reversed in part, holding that Hanover Realty’s injuries were “inextricably intertwined” with the noted anti-competitive conduct, and Hanover Realty thus met the legal standard for asserting a valid antitrust claim. The Third Circuit found that the end goal of the misconduct was designed to injure Wegmans by keeping them out of the market. In doing so, Hanover Realty, the party tasked with obtaining all necessary permits and approvals, was targeted by the sham petitions and was forced to unnecessarily incur substantial attorneys’ fees, costs and delays in its development plans. While the Third Circuit limited its holding to allow Hanover Realty to pursue anti-monopolization claims in the market for full-service supermarkets (and not including the market for full-service supermarket rental space because the parties were not deemed “competitors” in that space), the Court also determined that the wrongful activities triggered the “sham exception” to the Noerr-Pennington doctrine, which ordinarily affords broad immunity from liability to those who petition the government for redress of their grievances. The Court found that the anti-competitive activities that were intentionally lodged with no purpose other than to thwart Hanover Realty’s development activities with Wegmans were substantial enough to overcome this otherwise widely-applied privilege.
Whether or not Hanover Realty’s claims ultimately prove successful in the lawsuit, the Third Circuit’s ruling carries a meaningful warning for commercial landlords and tenants seeking to block the entry of a competitor in its market space. Any such efforts must be strategically and tactfully employed with a legitimate purpose, in contrast to the borderline frivolous legal and administrative challenges from Village and ShopRite against Hanover Realty and Wegmans. Though these types of anti-competition claims are still somewhat of a rare species in the commercial real estate arena, the Hanover Realty decision will certainly provide frustrated developers and landlords with another ace in their sleeve to fight against existing competitors trying to remain the only game in town.