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Case Briefs Legal Update Fall.Winter 2015

Kathryn Oberto
Holland & Knight LLC
Orlando, FL

ADA CLAIMS

The Ninth U.S. Circuit Court of Appeals ruled that (i) a retail store tenant did not violate an ADA public accommodation requirement; (ii) the retail store tenant was not obligated to remediate violations in a parking lot; and (iii) a district court’s grant of attorney fees was inappropriate. Kohler v. Bed Bath & Beyond of Cal., LLC, 780 F.3d 1260 (9th Cir. 2015).

Chris Kohler, a disabled paraplegic, visited a Bed Bath & Beyond (“BB&B”) store at the Lake Elsinore Marketplace in Lake Elsinore, CA, several times. Kohler claimed there were many architectural barriers within the store and in the parking lot, which impeded his ability to use the BB&B store including, but not limited to: (1) insufficient clearance next to the restroom door due to inadequate wall space; (2) inappropriate placement and operation of toilet paper and paper towel dispensers within BB&B’s restroom, and (3) insufficient slopes and cross-slopes in the parking lot serving the BB&B store.

            With respect to the restroom door clearance, the district court concluded the Americans with Disabilities Act (“ADA”) Accessibility Guidelines provide a minimum floor space requirement, but not a minimum wall space requirement. Regarding the claim for inappropriate placement of toilet paper and paper towel dispensers, the district court ruled the claim not actionable because BB&B remediated the dispensers to comply with state law. The district court also decided that because BB&B did not “own, lease or operate” the shopping center parking lot, BB&B was not liable for any ADA violations in the parking lot. The district court denied Kohler’s motion for summary judgment and granted BB&B’s motion for summary judgment on all claims.

           Afterward, BB&B moved for attorney fees. The district court concluded that (i) eight of Kohler’s claims were “without any foundation”; (ii) Kohler’s claim for insufficient clearance next to the restroom door was “illogical”; (iii) Kohler should have known BB&B did not own, lease or operate the parking lot because Kohler had sued the shopping center’s landlord previously; and (iv) Kohler’s toilet paper and paper towel dispenser claims were “frivolous.” Thus, the district court awarded BB&B $59,892 for attorney fees.

            Kohler appealed the district’s court’s grant for summary judgment and award of attorney fees to the Ninth Circuit. Specifically, Kohler appealed the claims regarding the clearance next to the restroom door and the slopes and cross-slopes in the parking lot. The circuit court quickly affirmed the district court’s grant of summary judgment with respect to the clearance next to the restroom door because the ADA Accessibility Guidelines do not require a specific wall length on the side of a doorframe.

            Kohler argued that the lease language designating the parking lot as a common area to be operated, maintained and repaired by the landlord was an attempt to contract away BB&B’s ADA liability. In a prior decision, the federal circuit court had ruled (i) the ADA imposes concurrent obligations on the landlord, as an owner of the property, and the tenant, as the controller of the property, and (ii) a landlord could not contract away its responsibility under the ADA by shifting responsibility to its tenants.

           Kohler’s position sought to impose liability on BB&B, as a tenant, for a parking lot violation; but the lease did not grant control of the parking lot to BB&B. The Ninth U.S. Circuit Court of Appeals declined to accept this interpretation of the district court’s decision. If it had adopted Kohler’s position, the court reasoned that BB&B would have the burdensome task of suing the landlord for an injunction to cause remediation of the ADA violation. The Ninth Circuit clarified that a landlord is liable for ADA violations as the owner of the property, regardless of whether a lease exists. A tenant, however, has no legal relationship to property absent a lease granting control to the tenant. Thus, “BB&B has no liability to contract away on parts of the parking lot over which it has no control.”

          The Ninth Circuit reversed the district court’s award of attorney fees to BB&B. The court found that a defendant in a civil rights action may recover its fees if “the plaintiff’s action was frivolous, unreasonable, or without foundation.” The court stated that Kohler’s claims regarding the clearance next to the restroom door and the slopes and cross-slopes in the parking lot were not clearly resolved by prior case law and therefore were not frivolous.

          The court also stated that the claim regarding the paper towel dispenser was rendered moot because of BB&B’s voluntary remediation, but that did not make BB&B a prevailing party entitled to fees because there was “no judicially sanctioned change in the legal relationship of the parties.” Additionally, the court found the claim with respect to the toilet paper dispenser was not frivolous on the basis that Kohler’s claim referred to a state law requirement, rather than an ADA requirement. The court decided none of Kohler’s claims were frivolous. Therefore, the Ninth Circuit affirmed the grant of summary judgment and reversed the grant of attorney fees to BB&B.

 COVENANTS

The circuit court of Fairfax County, Virginia, ruled that a landlord breached a material covenant of a lease by not filling vacant space with an appropriate “mix” of iconic global luxury designers and retailers. In re: Fairfax Square LLC v. Hermes of Paris, Inc., No. 2014-06509, 2015 Va. Cir. LEXIS 8 (Va. Cir. Jan. 13, 2015).

Fairfax Square LLC (“Landlord”) brought a complaint for declaratory judgment and permanent injunction against Hermes of Paris, Inc. (“Tenant”) for a default under its January 10, 1990, lease and its addendum (the “Lease”). In response, Tenant filed a counterclaim complaint for declaratory judgment.

          Landlord owns a high-end luxury retail shopping center in the Tysons Corner area of Northern Virginia (the “Shopping Center”). Tenant holds an iconic and globally recognized position in the luxury goods retail market. In order to protect Tenant’s brand name and position within the global market, and as a material covenant within the Lease, Landlord agreed in the Lease,

that the mix of tenants in the retail section of [the Shopping Center] shall be composed of quality retail establishments which sell the highest quality goods and which are “luxury” tenants selling premium brands, such as, by way of example, Tiffany’s (sic), Fendi and Gucci.

The original configuration of the Shopping Center included the aforementioned luxury retail establishments.

          In 2014, Landlord entered into several new leases within the Shopping Center with the following tenants: (1) Miele, a luxury appliance retailer; (2) USAA bank; and (3) Lijenquist & Beckstead, a local luxury jeweler. (Collectively 1, 2, and 3 shall be the “New Tenants.”) Following the entry of the New Tenants, Tenant notified Landlord of a material breach of the Lease, alleging the mix of retailers in the Shopping Center did not satisfy the requirements of the Lease. In response, Landlord filed (i) a declaratory judgment, which contended that the mix of retail establishments satisfied the requirements of the Lease; (ii) for a permanent injunction, which sought to prevent Tenant from vacating as a bookend tenant; and (iii) a demand for attorney fees. Tenant then filed its answer and a counterclaim seeking a finding that Landlord breached the Lease by not leasing the Shopping Center to an appropriate mix of luxury tenants.

Following the consideration of parol evidence to clarify latent ambiguities present in the Lease, the court found the plain language of the Lease supported Tenant’s claim that the Shopping Center lacked a mix of luxury tenants. The court found that the use of examples within the Lease “by way of example, Tiffany’s (sic), Fendi, and Gucci” created a class that restricted the type of tenant that could meet the definition of “luxury tenant.” The use of the specific examples limited the type of tenant to only global iconic brands.

The court distinguished Tiffany & Co., Gucci and Fendi as global icons, which design and sell their own brands. By only listing international luxury retailers that design and sell their own brand, the drafters of the Lease intended to create this specific and more restrictive class of tenant. The court found that the New Tenants and the new “mix” of tenants in the shopping center did not satisfy the requirements of the Lease. Of the remaining tenants, only Tiffany & Co. fell within the class of retailer required by the Lease. As such, the court found the “mix” of tenants inadequate to meet the terms of the Lease.

The court dismissed the injunction brought by Landlord because Tenant decided to remain in the Shopping Center and pay rent until the parties could resolve their dispute. Further, even if Tenant vacated while litigating the dispute, the court found that such conduct would not require injunctive relief because (i) Tenant occupied only 10 percent of the Shopping Center’s leasable space and (ii) Tenant’s presence was not required under any other lease. Consequently, Tenant’s departure did not constitute irreparable harm to Landlord. The court ordered only costs to Tenant as a matter of law and found each party should pay its own attorney fees.

EMINENT DOMAIN

The Fourth Court of Appeal of California ruled that (i) a city’s imposition of conditions that indefinitely prohibited the development of over one-third of a commercial property to preserve that property for a portion of an interchange project was an invalid taking, and (ii) the development owner’s appeal did not become moot when the county subsequently took control of said interchange project and pursued a separate, direct condemnation action against the owner. Jefferson Street Ventures, LLC v. City of Indigo, 236 Cal. App. 4th 1175 (Apr. 21, 2015).

Jefferson Street Ventures, LLC (“Jefferson”) applied to the City of Indio (“City”) for development of a shopping center. Adjacent to this shopping center, the City was planning independently to complete a major freeway interchange; however, the City was still in the process of acquiring federal approval. Specifically, the City’s interchange project was still pending NEPA (National Environmental Policy Act of 1969) review. While the City gave estimates on when approval might be acquired, no specific dates or timeframes were made available. Jefferson and the City discussed the possibility of Jefferson continuing to build and the City taking the property for just compensation at a later date, but the City resisted this, citing the potential additional costs of demolition and tenant relocation upon construction of the interchange.

          Consequently, through a series of hearings and application proceedings, the City considered Jefferson’s proposal and eventually accepted Jefferson’s application with certain conditions. Most notably, these conditions included that Jefferson’s project master plan (“PMP”) be revised to develop only 17 acres  of Jefferson’s 26.85-acre plot, with an additional 2.1- acre temporary no-build area pending finalization of the interchange project, which the City anticipated would be needed for interchange construction. The City admitted that Jefferson’s proposed PMP was consistent with the goals and policies of the City’s general plan, and that it was consistent with the City’s zoning ordinances and met the requirements of the specific plan for that area.

          Because of the City’s imposition of conditions, Jefferson never began construction and instead immediately filed suit for a writ of mandate to approve Jefferson’s original PMP, and alternatively for damages for inverse condemnation of the land restricted by the City’s conditional approval. Jefferson argued that the City had no authority to condition the PMP on leaving a portion of the property undeveloped. It further contended that forcing dedication of private property, which bore no nexus to the impact of the proposed development, constituted an inverse condemnation that would, therefore, require just compensation. The trial court denied Jefferson’s writ, and eventually also concluded that denying that writ precluded Jefferson’s alternative claim for damages for inverse condemnation. Jefferson then appealed.

          The court of appeal reversed the trial court decision, holding that Jefferson’s writ be approved both for the property zone the City restricted entirely from development and the temporary 2.1-acre no-build area reserved for the interchange construction period. The court of appeal additionally instructed the trial court to determine just compensation values for the taking. It relied on three major facts: (i) Jefferson’s PMP “fully satisfied all the City’s requirements for development,” (ii) “nothing in the record suggest[ed] Jefferson’s project caused or contributed to the need for the Interchange” and (iii) the City’s “primary rationale” for restricting the development was to avoid additional costs for building demolition and tenant relocation, if and when the City’s interchange project was approved and funded.

          The court reasoned that, while the need for flexibility in municipal planning for such an interchange could strike against an inverse condemnation action, a taking occurs when the state’s desire to acquire such property in the future results in denial of land use approvals. (See also People ex rel. Dept. of Transportation v. Diversified Properties Co. III, 14 Cal. App. 4th 429 (1993)) The court agreed that the conditions imposed on Jefferson here were imposed to “bank” the land’s then-current undeveloped status for future potential condemnation at an uncertain time.

          The City argued that the portion of land affected by the conditions was not a taking because such a large portion of the land remained developable. The court rejected this argument, reasoning that this portion of the land was substantial, and that the City itself divided the land into discrete segments, so that the portion of the land could be considered on its own. The court likewise rejected Jefferson’s argument that the entire land was taken, not just the portion restricted, because the portion restricted was so clearly identified in hearings.

          The court additionally addressed a mootness question regarding the fact that the County of Riverside (“County”) had taken over the interchange project during the instant appeal, and further that the County was pursuing direct condemnation against the same Jefferson land. The City argued that the appealed issues must be moot to avoid possibly duplicative just compensation, but the court disagreed, reasoning that (i) the County’s action could be abandoned, (ii) the County’s action might not encompass the entire land at issue in the instant appeal and (iii) any possible duplicative damages would be resolved on remand.

*Kathryn Oberto is a Partner at Holland & Knight, resident in the Florida office.