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Holly Hill Mall, LLC v. Sears, Roebuck, and Co.

United States District Court, M.D. North Carolina

February 14, 2017

HOLLY HILL MALL, LLC, Plaintiff,
v.
SEARS, ROEBUCK, and CO., Defendant.

          MEMORANDUM OPINION AND ORDER

          N. Carlton Tilley, Jr. Senior United States District Judge.

         This matter is before the Court on a Motion to Dismiss [Doc. #8] by Defendant Sears, Roebuck and Co. (“Sears”). For the reasons that follow, the motion is granted as to the implied covenant to operate in a commercially reasonable manner and express duty to “direct an intensive and continuous merchandising and promotion program”, but denied as to the alleged failure to provide net sales reports.

         I.

         Nearly fifty years ago, Sears entered into a Lease with what is now Holly Hill Mall, LLC (“Holly Hill”) according to which it would lease 65, 000 square feet of retail space in Burlington, North Carolina. (Compl. ¶ 5 [Doc. #3]; see generally Lease and Operating Agreement (unless otherwise specified, “Lease”) [Doc. #9-1][1]; Lease ¶ 6. (b).) According to the terms of the Lease, Sears does not pay a fixed base rent, but, instead has agreed to pay a percentage of its monthly net sales as rent. (Compl. ¶ 6; Lease ¶ 7. (a); Fourth Amendment to Lease ¶ 5.) Within fifteen days after the end of each calendar month, but within twenty-five days after the end of July and January, Sears is also obligated to provide Holly Hill a statement of Sears' net sales for that month. (Compl. ¶ 7; Lease ¶ 7. (d).) This “is the only mechanism through which [Holly Hill] can determine whether Sears is paying the correct amount of rent.” (Compl. ¶ 7.) If Sears fails to meet any of its obligations under the Lease and fails to cure the default within fifteen days of notice of such default, Holly Hill has the right to terminate the Lease and re-enter the premises. (Compl. ¶ 8; Lease ¶ 16.)

         Holly Hill alleges that Sears breached the Lease, a valid and binding contract between the parties, when Sears failed to provide net sales reports for four specified months, failed “to direct an intensive and continuous merchandising and promotional program for its business”, and failed to operate in a commercially reasonable manner. (Compl. ¶¶ 13.a., 13.b., 15.) Holly Hill also asserts a claim for summary ejectment arising from Sears' failure to provide net sales reports, failure “to direct an intensive and continuous merchandising and promotional program for its business”, and failure to cure those breaches within fifteen days of the notice of default, permitting Holly Hill to terminate the Lease and re-enter the premises. (Id. ¶¶ 19-22.) Holly Hill allegedly provided Sears with notice of termination of the Lease, but because Sears has refused to surrender the premises, Holly Hill alleges that it is entitled to possession. (Id. ¶¶ 23-24.) Sears argues, though, that Holly Hill has failed to state a claim for which relief can be granted.

         II.

         To survive a Rule 12(b)(6) motion, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556); see also McCleary-Evans v. Md. Dep't of Transp., State Highway Admin., 780 F.3d 582, 585 (4th Cir. 2015) (noting that a complaint must “contain[] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face in the sense that the complaint's factual allegations must allow a court to draw the reasonable inference that the defendant is liable for the misconduct alleged”). When evaluating whether the complaint states a claim that is plausible on its face, the facts are construed in the light most favorable to the plaintiff and all reasonable inferences are drawn in its favor. U.S. ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014). Nevertheless, “labels and conclusions[, ]” “a formulaic recitation of the elements of a cause of action[, ]” and “naked assertions . . . without some further factual enhancement” are insufficient. Twombly, 550 U.S. at 557.

         III.

         Sears first challenges the allegation that it breached the Lease's “implied covenant to operate the business in a commercially reasonable manner.” (Opening Br. in Supp. of Def. Sears' Mot. to Dismiss (“Br. in Supp.”) at 7-11 (citing Compl. ¶ 14) [Doc. #9].) “The elements of breach of contract are (1) the existence of a valid contract and (2) breach of the terms of the contract.” Martinez v. Univ. of N.C. , 741 S.E.2d 330, 332 ( N.C. Ct. App. 2012) (quoting Long v. Long, 588 S.E.2d 1, 4 ( N.C. Ct. App. 2003)) (finding that the plaintiff stated a valid claim for breach of contract when he alleged that he contracted to receive a commensurate salary and that the defendant breached the contract when it refused to pay him a commensurate salary).

         In the Complaint, Holly Hill alleges that the Lease is a valid and binding contract between it and Sears. (Compl. ¶ 12.) It also alleges that “in every lease in which rent is based upon the sales of a business and there is no base rent or base rent is insubstantial, there is an implied covenant to operate the business in a commercially reasonable manner.” (Id. ¶ 14.) “Upon information and belief, Sears breached the implied covenant to operate by failing to operate its store at the Premises in a commercially reasonable manner, which deprived [Holly Hill] of rent from net sales.” (Id. ¶ 15.)

         According to Sears, there is no implied duty to operate in a commercially reasonable manner and, even if there were, Holly Hill has not sufficiently alleged facts to support the alleged breach. (Id. at 7-8.) The Court agrees with both arguments. Holly Hill provides no explanation of the phrase “to operate in a commercially reasonable manner”. Furthermore, while it concedes that North Carolina courts have not expressly recognized an implied duty to operate, it tries to equate such a duty with the implied duty of good faith and fair dealing. (See Pl.'s Am. Mem. of Law in Opp'n to Mot. to Dismiss (“Br. in Opp'n”) at 13 [Doc. #12].) Not only did Holly Hill not allege a violation of the duty of good faith and fair dealing, but, at least on their face and without direction as to the meaning of “commercially reasonable” operation, these duties are not the same.

         Even if there were such a duty to operate in a commercially reasonable manner, Holly Hill has alleged no facts to support the allegation that Sears breached the duty. There are no facts whatsoever alleging how Sears did or did not operate its business. “[L]egal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement fail to constitute well-pled facts for Rule 12(b)(6) purposes.” Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009).

         IV.

         Next, Sears challenges the allegation that it breached an express duty “to direct an intensive and continuous merchandising and promotional program for its business.” As part of its breach of contract and summary ejection claims, Holly Hill alleges that “[u]pon information and belief, Sears failed to direct an intensive and ...


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