Timing is Everything
by Ron Davis
A perfectly timed relocation of a Samís Club operation from one Maryland shopping center to another has helped parent company Wal-Mart Stores, Inc., avoid assessment of a big penalty.
The shopping center that the Samís Club moved from is Diamond Point Plaza, located in the Baltimore area. Following Wal-Martís purchase of a retailer that leased space there, Wal-Mart opened a Samís Club in the store previously occupied by that retailer.
The long-term lease agreement between Wal-Mart and the owners of Diamond Point Plaza included a special provision, however. It restricted the simultaneous operation of any other Samís Club within a radius of seven miles.
Wal-Mart nevertheless soon negotiated a deal with the developers of a nearby newly planned shopping center, Golden Ring Mall. And that shopping center was being built only a couple of miles from Diamond Point Plaza.
Wal-Martís idea to counteract the lease restriction was to begin operations of the Samís Club at Golden Ring the day after closing the Diamond Point store. That tactic, Wal-Mart concluded, would negate the location provision of the Samís Club lease at Diamond Point.
When Wal-Mart carried out the plan, however, the owners of Diamond Point Plaza sued, charging Wal-Mart with violation of the lease. And a Maryland court ruled in the ownersí favor, ordering Wal-Mart to pay $56,260 for violating the lease terms regarding the radius restriction. Wal-Mart appealed.
A Maryland appellate court reversed the lower court, explaining, ďThere is no ambiguity in the language of the lease that its plain intent and meaning is to prohibit Samís Club, while operating a store in the leased premises at Diamond Point Plaza from simultaneously owning, managing, or operating another similar store within seven miles from that shopping center.... However, the prohibition is clearly limited. What is precluded is owning, managing, operating, or having a financial interest in a store or business, during the term of the lease, that is Ďsimilar to that then being conducted upon the [Diamond Point] premises.í That necessarily requires that there be a store or business presently being conducted at Diamond Point and that the second store or business within the seven-mile radius be similar to it.Ē (Diamond Point Plaza Limited Partnership v. Wells Fargo Bank, N.A., 2007 WL 2128169 [Md.])
Decision: August 2007
Published: November 2007