Court Orders Preliminary Injunction Requiring Starbucks to Keep Teavana Stores Open
On November 27, 2017, the Marion County Superior Court in Indiana shocked the retail leasing world by granting Simon Property Group, L.P. a preliminary injunction requiring Starbucks Corporation to continue its operations of its Teavana retail stores (see Simon Prop. Group, L.P. v. Starbucks Corp., No. 49D01-1708-PL-032170 (Ind. Super. Ct., Marion, filed Aug. 21, 2017)). No court had previously given injunctive relief to specifically enforce a continuous operations clause against a non-anchor tenant on a national basis such as this. Given the ramifications to landlords and tenants alike, we wanted to alert you to this potentially landmark decision.
On July 27, 2017, Starbucks publicly announced that it decided to close all of its Teavana-branded stores. When it made its announcement, Starbucks had 77 active Teavana stores located in Simon’s malls. All of Simon’s leases with Teavana contained a covenant by which the tenant covenanted to continuously operate within 100 percent of the leased premises for the entire lease term. Seventy-two of the leases expressly provided a specific performance remedy for any breach of the continuous operations covenant; the other five provided Simon the right to seek injunctive and other equitable relief in the event of an anticipated breach.
Starbucks testified that it reached the decision to close the Teavana stores after determining that the Teavana retail store model would not be viable and knew that such closures would breach of the leases. Promptly following Starbucks’ announcement, Simon filed suit to enforce the continuous operations covenant. In connection with its suit, Simon filed a motion for a preliminary injunction to require Starbucks to keep the Teavana stores open and operating.
In its determination that the preliminary injunction should be issued, the Court applied the elements of Indiana law: (a) likelihood of success on the merits, (b) irreparable harm, (c) a balancing of the harms, and (d) the public interest. Two noteworthy takeaways from the Court’s discussion of the irreparable harm prong:
- The Court leaned on Simon’s position that a mall is not simply a random collection of stores, rather a carefully curated tenant mix on a property-by-property basis. Allowing Starbucks to breach its obligations to continuously operate a Teavana store in the mall would lead to a cascading effect of multiple harms, such as re-tenanting costs, co-tenancy failures, and the heightened risk that other tenants would elect to breach similar continuous operations covenants and close.
- The Court noted that Starbucks itself was a financially secure corporation with a market capitalization of more than $80 billion, so the decision to close the Teavana chain was only a business decision and not a threat to Starbucks’ continued operations.
As this case in Indiana continues, retail landlords may want to review their leases to see if they contain continuous operations and specific performance provisions. Similarly, retail tenants contemplating early closures may be forced to consider the impacts of this Simon v. Starbucks ruling.