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Nicholson v. Thrifty Payless, Inc.

United States District Court, W.D. Washington, Seattle

February 18, 2014

BRENT NICHOLSON, et al., Plaintiffs,
THRIFTY PAYLESS, INC., et al., Defendants.


ROBERT S. LASNIK, District Judge.

This matter comes before the Court on "Thrifty's Motion for Partial Summary Judgment Dismissing Lease and Good Faith Counts." Dkt. # 25. Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine dispute as to any material fact that would preclude the entry of judgment as a matter of law. L.A. Printex Indus., Inc. v. Aeropostale, Inc. , 676 F.3d 841, 846 (9th Cir. 2012). The party seeking summary dismissal of the case "bears the initial responsibility of informing the district court of the basis for its motion" ( Celotex Corp. v. Catrett , 477 U.S. 317, 323 (1986)) and identifying those portions of the materials in the record that show the absence of a genuine issue of material fact (Fed. R. Civ. P. 56(c)(1)). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to identify specific factual disputes that must be resolved at trial. Hexcel Corp. v. Ineos Polymers, Inc. , 681 F.3d 1055, 1059 (9th Cir. 2012). The mere existence of a scintilla of evidence in support of the non-moving party's position will not preclude summary judgment, however, unless a reasonable jury viewing the evidence in the light most favorable to the non-moving party could return a verdict in its favor. U.S. v. Arango , 670 F.3d 988, 992 (9th Cir. 2012).

Having reviewed the memoranda, declarations, and exhibits submitted by the parties in the light most favorable to plaintiffs and having heard the arguments of counsel, the Court finds as follows:


Plaintiff Brent Nicholson has been in the business of developing real estate since approximately 1991. Starting in 2006, Nicholson formed the plaintiff limited liability companies to finance and develop eleven Rite Aid pharmacies in Washington and California. The general business model was as follows: defendants[1] would propose and approve construction of a Rite Aid pharmacy in a certain location, identifying Nicholson as the developer. Nicholson, through one of his companies, would acquire property on which to build the pharmacy to defendants' specifications. At some point during the process, defendant Thrifty Payless, Inc., would enter into a written lease agreement for each project with the limited liability company formed for that purpose.[2] Plaintiffs would bear all of the carrying, permitting, and development costs during the build in exchange for Thrifty's agreement to lease the building for a period of twenty years, with options, thereby allowing plaintiffs to recoup their costs and earn a profit.

Plaintiffs assert breach of contract and breach of the covenant of good faith and fair dealing claims against Thrifty arising out of its termination of the leases. The viability of these claims turns, in large part, on the intent of the parties regarding the date on which each project was to be delivered to Thrifty. Defendant argues that the delivery date (or range of dates) set forth in each lease was cast in stone and binding on the parties unless and until a written modification of the lease, signed by both parties, was made. Plaintiffs, on the other hand, argue that the specified delivery date (or range of dates) was intended to be a target, to be adjusted by agreement of the parties as the acquisition, permitting, and construction activities proceeded.

The form of the leases at issue changed over time. The first six leases signed - for Blaine, Bremerton, Concord, Everett, Port Angeles, and Silverdale - required plaintiffs to:

complete Landlord's Work within __ months following the date hereof (the "Delivery Period"). If Landlord fails (for any reason, including force majeure events, however excluding Tenant caused delays, in which event the Delivery Period shall be extended one day for each day of delay) to complete Landlord's Work by [] such date, then Tenant may (in addition to any other rights of Tenant under this Lease or available at law or in equity): (i) terminate this Lease on written notice to Landlord, which termination shall be effective on the date which is thirty (30) days from Landlord's receipt of such notice unless during such 30day period Landlord has completed construction of the Premises....

See, e.g., Decl. of E. Birch Frost (Dkt. # 27), Ex. 15 at ¶ 7. The time periods for completion ranged from twelve to thirty months. The Port Angeles and Silverdale leases remained of this type, but the other four leases were amended so that they and all subsequent leases included the following delivery date provision:

The Delivery Date shall occur no earlier than __________ and no later than _____________ (the "Anticipated Delivery Date"). Landlord agrees to use diligent efforts to deliver possession of the Leased Premises to Tenant, with Landlord's Work substantially completed, on the Anticipated Delivery Date; and Landlord agrees to provide written notice to Tenant of any delays respecting completion of the Anticipated Delivery Date within five (5) days after becoming award of the cause for delay.

See, e.g., Decl. of E. Birch Frost (Dkt. # 27), Ex. 5 at ¶ 6(i). The Anticipated Delivery Date was set one to three years into the future and lasted for two to four months. A separate termination provision containing essentially the same language as the original form of lease allowed defendant to terminate the lease upon thirty days' notice if plaintiffs failed to complete the landlord's work by the Anticipated Delivery Date (unless the delay were caused by Thrifty). See, e.g., Decl. of E. Birch Frost (Dkt. # 27), Ex. 5 at ¶ 7.

Over the course of the eleven development projects, the parties reported and apparently relied upon delivery and fixture dates that were inconsistent with the dates specified in the leases. Most of these changes were not memorialized in a formal modification or lease amendment, although they were recorded in a computer program maintained by defendants. In May 2008, with six leases already signed, defendants did a "Pipeline Review" and determined that they needed to restructure the development program, pushing back store opening dates and increasing the rents in order to offset the resulting increase in carrying costs. Decl. of Jeffrey M. Thomas (Dkt. # 36), Ex. F.[3] At the time of the "Pipeline Review, " the delivery dates for Blaine, Bremerton, and Concord had already been delayed, apparently without a "writing... signed by the Landlord and the Tenant." See, e.g., Decl. of E. Birch Frost (Dkt. # 27), Ex. 5 at ¶ 43. For Port Angeles, both the "current" and "potential" store opening dates set forth in the "Pipeline Review" actually preceded the delivery date specified in the lease. In January 2009, defendants requested that the delivery date for the Oakley store, which had already been pushed past the dates specified in the lease, be delayed even further. Decl. of Jeffrey M. Thomas (Dkt. # 36), Ex. N. Plaintiffs, meanwhile, were running into all sorts of financing and permitting issues. They kept Thrifty apprised through biweekly teleconferences during which the parties discussed the progress at each site and defendants' store opening plans and, if necessary, adjusted the date on which Thrifty would take delivery and begin installing fixtures. Defendants maintained a detailed computerized program, called Site Trak or T-Rex, which identified each project and the proposed, revised, and actual dates on which key development events occurred or were scheduled to occur. Decl. of Jeffrey M. Thomas (Dkt. # 36), Ex. A (11/30/09 T-Rex report), Ex. R (7/24/09 T-Rex report), Ex. V (5/21/09 T-Rex report), Ex. H (4/30/09 T-Rex report), Ex. Q (3/23/09 T-Rex report, and Ex. I (7/29/08 Site Trak report). Following the biweekly meetings, defendants updated these reports to reflect the new dates to which the parties had agreed, then sent the report to plaintiffs in anticipation of the next biweekly meeting.

Plaintiffs did not make delivery on any of the projects by the delivery dates specified in the leases. On June 2, 2009, Thrifty provided written notification of their intent to terminate the lease related to the San Pablo pharmacy "due to the landlord's failure to deliver possession of the premises to us by the outside delivery date set forth in the Lease." Decl. of E. Birch Frost (Dkt. # 27), Ex. 27. The lease included a delivery window of February 2, 2009, to June 2, 2009. According to the March 23, 2009, T-Rex report, however, the project deadlines had been revised such that groundbreaking would not occur until May 2009. The parties apparently estimated a sixteen week build, and defendants revised the dates related to their installation of fixtures, stocking, and store opening accordingly. Although the columns in the T-Rex report do not track the lease in that it does not have a column entitled "Anticipated Delivery Date, " the report and the remaining lease terms, when taken in the light most favorable to plaintiffs, shows that the parties agreed to delay the delivery date until approximately November 9, 2009. That was the revised date for fixture installation ( i.e., the date on which the landlord's work would be substantially complete and defendants planned to make improvements to the building) and would provide a reasonable period of time after the scheduled groundbreaking and before the store opening date to accomplish all necessary tasks. Thus, there is evidence that, when Thrifty sent the termination letter for San Pablo on June 2, 2009, the parties had previously to postpone the delivery date until November 2009.

For a number of other projects, the parties apparently agreed to postpone construction indefinitely. They inserted a placeholder store opening date of January 1, 2025, in T-Rex and simply left the fixture and stocking dates blank. The projects were essentially on hold, with the parties hoping that the economy would pick up, producing increased product demand and financing options, at which point they would negotiate a more realistic and timely construction schedule/delivery date. When Thrifty sent termination notices for Concord, Port Angeles, Everett, Blaine, Santa Rosa, Oakley, and ...

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