Simon Property Group, L.P. v. Regal Entertainment Group ( 2022 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SIMON PROPERTY GROUP, L.P., on )
behalf of itself and affiliated landlord )
entities, )
)
Plaintiff, )
) C.A. No. N21C-01-204 MMJ (CCLD)
v. )
)
REGAL ENTERTAINMENT GROUP, )
HOYTS CINEMAS CORPORATION, )
and WALLACE THEATER )
HOLDINGS, INC., )
)
Defendants. )
Submitted: May 16, 2022
Decided: June 27, 2022
On Plaintiff’s Motion for Partial Summary Judgment as to Liability
GRANTED
Timothy R. Dudderar, Esq., Jesse L. Noa, Esq., Carla M. Jones, Esq., Potter
Anderson & Corroon, LLP, Wilmington, DE, David M. Fedder, Esq., Dentons US
LLP, St. Louis, MO, Shannon Shin, Esq. (Argued), Dentons US LLP, Chicago, IL,
Attorneys for Plaintiff Simon Property Group, L.P.
Kashif I. Chowdhry, Esq., Parkowski, Guerke & Swayze, P.A., Dover, DE, Curtis
Romig, Esq. (Argued), Kevin Arocha, Esq., Bryan Cave Leighton Paisner LLP,
Atlanta, GA, Erin A. Kelly, Esq., Bryan Cave Leighton Paisner LLP, Denver, CO,
Attorneys for Defendant Regal Entertainment Group, et al.
1
OPINION
JOHNSTON, J.
FACTUAL AND PROCEDURAL CONTEXT
This case stems from leasing arrangements disrupted by the Covid-19
Pandemic.
The landlord is Simon Property Group L.P. (“Simon”), a Delaware limited
partnership. Simon is the principal operating partnership for Simon Property
Group Inc., a publicly-held Delaware corporation. Simon brings this action on
behalf of itself and as an assignee of its affiliated landlord entities (“Simon
Landlords”).
Regal Entertainment Group is the parent company of several entities
(“Tenants”) that are tenants at various Simon properties. Hoyt Cinemas
Corporation and Wallace Theater Holdings are subsidiaries of Regal Entertainment
Group. Defendants, Regal Entertainment Group, Hoyt Cinemas Corporation, and
Wallace Theater Holdings (collectively “Regal”) are Delaware corporations.
This action involves four commercial lease agreements (“Leases”) between
Simon and Regal—Cape Cod Mall in Massachusetts, Coconut Point in Florida,
McCain Mall in Arkansas, and Shops at Nanuet in New York. The Leases were
2
entered into between March 19991 and July 2012. Each Lease is subject to a
choice-of-law provision.
Each Lease requires Tenants to timely pay their obligations as outlined
within the rental agreements. Regal guaranteed performance by Tenants of all
agreements, covenants, and obligations contained within the Leases. Each Lease
contains either the same or a close variation of the following Guarantee Provision:
Guarantor hereby absolutely unconditionally and irrevocably
guarantees (i) the full and prompt payment of rent and other charges
payable under the Lease, (ii) the full, complete and punctual
performance, observance and satisfaction of each obligation, duty,
covenant and agreement of Tenant under the Lease, and (iii) the full
and prompt payment of any costs of enforcing this Guaranty . . . . If
Tenant defaults under the Lease, Guarantor will immediately cure the
default, including payment to Landlord of any amounts in default, and
including all damages and expenses arising in connection with Tenant’s
default, to the extent such are required to be paid by Tenant pursuant to
the Lease.
The Leases also contain a force majeure provision, obligating Tenants to pay
rent in full and on time despite the occurrence of a force majeure event. Each
force majeure clause provides either the same or a similar variation of the
following:
Section 21.5. Force Majeure. If either party hereto shall be delayed or
hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, labor troubles, inability to
procure material, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war, environmental remediation work
1
The Cape Cod Lease was executed in March 1999, but operates under an amendment executed
in January 2020.
3
whether ordered by any governmental body or voluntarily initiated, or
other reason of a like nature not the fault of the party delayed in
performing work or doing acts required under this Lease, the period
for the performance of any such act shall be extended for a period
equivalent to the period of such delay. Notwithstanding the foregoing,
the provisions of this Section 21. 5 shall at no time operate to excuse
Landlord or Tenant from the payment of Minimum Annual Rent,
additional rent or any other payments required by the terms of this
Lease when the same are due, and all such amounts shall be paid
when due.2
In March 2020, state and local governments began to implement numerous
orders and guidelines in response to the outbreak of COVID-19 in the United
States. As a result, multiple states, including the states where the Simon properties
are located—Massachusetts, Florida, Arkansas, and New York—mandated the
closure of shopping malls and movie theatres. 3 Tenants at Simon properties
adhered to the relevant COVID-19 restrictions in their respective states. In April
2020, Tenants began to default on their rent obligations under the Leases.
Upon reopening, capacity was restricted to 50% or less while adhering to
social distancing guidelines. Additionally, movie studios had limited access to
first-run films. Regal asserts there were no new releases from mid-March 2020
until at least August 2020. Regal began attempting to reopen theaters in August
2
Affidavit of Jeffrey M. Clifton (“Clifton Aff.”) Ex. F § 21.5.
3
Defendants present numerous examples of government regulations. The Governor of
Massachusetts issued a Shelter-At-Home order beginning March 24, 2020. The Governor of
Florida declared a Stay-At-Home order effective April 3, 2020. Around March 18, the Arkansas
Department of Public Health closed all indoor entertainment venues, including movie theaters.
On March 7, 2020, the Governor of New York declared a disaster emergency. On March 22,
2020, the Governor of New York issues an Executive Order requiring all non-essential
businesses to close.
4
2020 with limited access to first-run films. As a result, Regal asserts that it was
struggling to avoid bankruptcy due to non-existent revenue and high operating
costs.
Tenants currently are in default under their Leases for failure to pay rent and
other charges for the period between March 2020 and April 2021. Simon asserts
that Regal, as guarantor, owes Simon Landlords an excess of $5.5 million in
unpaid rent and other charges.
Simon has moved for partial summary judgment on Count II (Breach of
Cape Cod Regal Guaranty), Count III (Breach of Coconut Point Guaranty), Count
IV (Breach of McCain Mall Guaranty), and Count V (Breach of Shops at Nanuet
Guaranty).
MOTION FOR SUMMARY JUDGMENT STANDARD
Summary judgment is granted only if the moving party establishes that there
are no genuine issues of material fact in dispute and judgment may be granted as a
matter of law.4 All facts are viewed in a light most favorable to the non-moving
party.5 Summary judgment may not be granted if the record indicates that a
material fact is in dispute, or if there is a need to clarify the application of law to
the specific circumstances.6 When the facts permit a reasonable person to draw
4
Super. Ct. Civ. R. 56(c).
5
Burkhart v. Davies, 602 A.2d 56, 58–59 (Del.).
6
Super. Ct. Civ. R. 56(c).
5
only one inference, the question becomes one for decision as a matter of law.7 If
the non-moving party bears the burden of proof at trial, yet “fails to make a
showing sufficient to establish the existence of an element essential to that party’s
case,” then summary judgment may be granted against that party.8
ANALYSIS
The primary issue is whether the COVID-19 pandemic is an event excusing
payment under the Leases. Each Lease contains a force majeure provision. The
Cape Cod force majeure clause provides:
The period of time during which either party is prevented or delayed in
any performance or the making of any improvements or repairs or
fulfilling any obligation under this Lease, other than the payment of
fixed annual minimum rent, additional rent, percentage rent or any
other required payment, due to unavoidable delays caused by fire,
catastrophe, strikes or labor trouble, civil commotion, Acts of God or
the public enemy, governmental prohibitions or regulations or inability
to obtain materials by reason thereof, or any other causes beyond such
party’s reasonable control, shall be added to such party’s time for
performance, and such party shall have no liability reason thereof.9
The Coconut Point force majeure clause provides:
If either party hereto shall be delayed or hindered in or prevented from
the performance of any act required hereunder by reason of strikes,
lockouts, labor troubles, inability to procure material failure of power,
restrictive governmental laws or regulations, riots, insurrection, war,
environmental remediation work whether ordered by any governmental
body or voluntarily initiated, or other reason of a like nature not the
fault of the party delayed in performing work or doing acts required
under this Lease, the period for the performance of such act shall be
7
Wooten v. Kiger, 226 A.2d 238, 239 (Del.).
8
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
9
Clifton Aff. Ex. E § 23.04.
6
extended for a period equivalent to the period of such delay.
Notwithstanding the foregoing, the provisions of this Section 21.5 shall
at no time operate to excuse Landlord or Tenant from the payment of
Minimum Annual Rent, additional rent or any other payments required
by the terms of this Lease when the same are due, and all such amounts
shall be paid when due.10
Both the McCain Mall and Shops at Nanuet force majeure clauses provide:
“Force Majeure Event” means any matter beyond the reasonable
control and not the fault of LANDLORD or TENANT as the case may
be, including, but not limited to, interference by governmental
authorities civil disturbance, strikes, lockouts, labor disputes, inability
to procure labor or materials failure of electric power, restrictive
governmental laws or regulations, governmental intervention, taking by
eminent domain, riots, insurrection, war, fire, casualty, severe weather,
acts of terrorism, and acts of God, subject to the provision that such
party’s lack of funds or the unavailability of a particular contractor or
personnel shall not be deemed a Force Majeure Event.11
***
In the event that either party here to shall be delayed or hindered in or
prevented from the performance of any act required hereunder (except
for the payment when due of any money) by reason of a Force Majeure
Event (defined in Section 1.03(d)), then performance of such act shall
be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent
to the period of such delay, if the party claiming entitlement to the
extension shall have provided written notice to the other party of the
event giving rise to the delay within ten (10) Business Days of the
occurrence of such event, but without such requisite notice being
provided, no extension shall be applicable. Delays or failures to
perform resulting from lack of funds or the unavailability of a particular
contractor or personnel shall not be deemed delays by reason of a Force
Majeure Event (defined in Section 1.03(d)).12
10
Clifton Aff. Ex. F § 21.5.
11
Clifton Aff. Ex. G § 1.03(d); Clifton Aff. Ex. H § 1.03(d).
12
Clifton Aff. Ex. G § 23.06; Clifton Aff. Ex. H § 23.06.
7
Simon relies on Simon Property Group, L.P. v. Brighton Collectibles, LLC,
in which this Court found that the COVID-19 pandemic is not an event that
excused payments under the lease. 13 The Brighton lease provided:
If either party hereto shall be delayed or hindered in or prevented from
the performance of any act required hereunder by reason of strikes,
lockouts, labor troubles, inability to procure material, failure of power,
restrictive governmental laws or regulations, riots, insurrection, war,
environmental remediation work whether ordered by any governmental
body or voluntarily initiated or other reason of a like nature not the
fault of the party delayed in performing work or doing acts
required under this Lease, the period for the performance of any such
act shall be extended for a period equivalent to the period of such delay.
Notwithstanding the foregoing, the provisions of this Section 24.5 shall
at no time operate to excuse Tenant from … any obligations for
payment of Minimum Annual Rent, Percentage Rent, additional rent or
any other payments required by the terms of this Lease when the same
are due, and all such amounts shall be paid when due.14
This Court dismissed the defenses of frustration of purpose, impossibility,
impracticability, and breach of quiet enjoyment, holding that the Brighton leases
contained a broad force majeure provision.15 The Brighton case survived the
motion to dismiss solely on the issue of oral modification of the leases.
Simon argues that courts across the country consistently have held
commercial Tenants to payment obligations despite the COVID-19 pandemic. In
Brighton, this Court relied on 1600 Walnut Corporation v. Cole Haan Company
13
2021 WL 6058522, at *2 (Del. Super.).
14
Id. at *6 (emphasis added).
15
Id. at *7.
8
Store.16 In Cole Haan, the United States District Court for the Eastern District of
Pennsylvania categorized the COVID-19 pandemic and resulting government
restrictions as a force majeure event. The District Court found that Cole Haan was
still obligated to pay rent under the lease.17 The District Court reasoned that the
Cole Haan parties had broad discretion to allocate risks between them in a
contract.18
The parties in this action currently have a related case in Indiana.19 Regal’s
affiliated entities argued that their payment obligations were excused by the
COVID-19 pandemic and related governmental restrictions. The Indiana
Commercial Court issued an order granting Simon’s motion for summary
judgement as to liability holding that the language of the Leases is “clear and
unambiguous that those abatement clauses do not overcome [the force majeure
provisions] which require the Defendants to pay rent on time despite any force
majeure events.”20 The court allowed the defense of impossibility to remain solely
to be addressed as it pertains to determining damages. 21
16
530 F.Supp.3d 555 (E.D. Pa.).
17
Id. at 558.
18
Id.
19
Simon Property Group, L.P. v Regal Cinemas, Inc., No. 49DOI-2102-Pl-005202 (Ind. Super.
Ct. Feb. 18, 2022).
20
Id., slip op. at 15.
21
Id., slip op. at 12.
9
The Leases in this action contain choice-of-law provisions. The governing
laws are respectively Tennessee, Arkansas, New York and Indiana. Simon asserts
that the laws of each jurisdiction are not in conflict.22 Regal does not provide
authority to the contrary that is directly on point with this COVID-19 pandemic-
based litigation.
Defendants primarily rely on UMNV 205-207 Newbury, LLC v. Caffé Nero
Americas Incorporated.23 The Caffé Nero court held: “Caffé Nero's obligation to
pay rent was discharged while it was barred from letting customers drink or eat
inside the leased premises, at least from March 24 to June 22, 2020.”24 The Caffé
Nero lease provided that Café Nero could only use the premises as a café and in a
manner consistent with other locations in the area. The Caffé Nero force majeure
clause provided:
Neither the Landlord nor the Tenant shall be liable for failure to
perform any obligation under this Lease, except for the payment of
money, in the event it is prevented from so performing by ... order
or regulation of or by any governmental authority ... or
for any other cause beyond its reasonable control, but financial
inability shall never be deemed to be a cause beyond a party's
reasonable control ..., and in no event shall either party be excused or
22
For example, in A/R Retail LLC v. Hugo Boss Retail, Inc., the New York Supreme Court
opined: “A number of New York courts assessing commercial lease disputes amidst the COVID-
19 pandemic have held that the temporary and evolving restrictions on a commercial tenant's
business wrought by the public health emergency do not warrant rescission or other relief based
on “frustration of purpose.” 2021 WL 2020879, at *9 (N.Y. Sup. Ct.).
23
2021 WL 956069 (Mass. Super.).
24
Id. at *1.
10
delayed in the payment of any money due under this Lease by reason
of any of the foregoing.25
The court allowed the frustration of purpose defense to survive, finding that there
were no other provisions in the lease that addressed the possibility of frustration of
purpose or allocating the risk of a global pandemic leading to operating
restrictions.26 The court reasoned:
This force majeure provision says that generally neither UMNV nor
Caffé Nero is liable for breach of contract if they are prevented from
performing by any cause beyond its reasonable control, but it includes
two important exceptions. First, financial inability shall never be
considered a cause beyond a party's control. Second, failure to pay
rent or other money due under the Lease will never be excused on the
ground that a party was prevented from making the payment by some
cause beyond its control. The phrase “by reason of any of the
foregoing” at the end of the provision refers to a party being
“prevented from ... performing by” any of the listed risks or any
other “cause beyond its reasonable control.”
Thus, the force majeure provision addresses the risk that performance
may become impossible, but does not address the distinct risk that the
performance could still be possible even while main purpose of the
Lease is frustrated by events not in the parties’ control.27
The court further reasoned that the Caffé Nero lease, as a whole, provided
confirmation that the force majeure provision did not address possible frustration
25
Id. at *6.
26
Id.
27
Id. (emphasis in the original).
11
of purpose.28 There were separate provisions in the lease that addressed the classic
cause of frustration of purpose and Caffé Nero’s rights under the doctrine.29
[N]othing in [the force majeure provision] says that [provisions
specifying how frustration of purpose would apply] is an exception to
the force majeure rules that the parties negotiated. Because it is not;
frustration of purpose is a different issue, arises under different
circumstances, and is not addressed by the force majeure provision.30
The holding in Caffé Nero is distinguishable and unpersuasive. The Court
finds that the force majeure clauses in the Leases are substantively similar to the
leases in Brighton and Cole Haan. There has been no argument that there are
separate clauses in the Leases that address allocation of risk for frustration of
purpose. The Leases are not ambiguous regarding the force majeure provisions.
The provisions very broadly allocate the risk of unforeseeable events. There is no
authority presented or basis to find that a force majeure provision must list every
possible event or circumstance that may excuse performance under the Lease. The
Leases unambiguously and clearly allocate risk of impossibility and
impracticability to Tenants.
The Court further finds that there is no conflict regarding a choice of law
analysis. Therefore, based on the great weight of authority in Delaware and other
28
Id.
29
Id. at *7.
30
Id.
12
jurisdictions, Simon is entitled to partial summary judgment on liability. The
Court finds that the affirmative defenses set forth by Regal do not apply.
The Court acknowledges that this ruling may seem harsh. However, all
parties to the Leases are sophisticated. The parties freely contracted and allocated
risks. The parties chose to allocate force majeure risk to Tenants.
The events surrounding COVID-19, although unfortunate, are neither
unprecedented nor unforeseeable. In the early 20th century, the world experienced
one of the most severe pandemics—the Spanish Flu. In 1988, the film industry
was significantly affected by the Writers Guild of America strike—halting the
release of first-run movies.
For purposes of clarity the Court need not address the standing of Regal to
assert the affirmative defenses of impossibility, impracticability, and frustration of
purpose. The Court need not address the circumstances surrounding closures as
they pertain to government restrictions. The Court further also need not address
the lack of access first-run films; Simon’s alleged breach of co-tenancy
requirements under the lease;31 and Simon’s alleged breach of the Covenant of
Quiet Enjoyment.
31
The co-tenancy provision provides:
(a) The “Co-Tenancy Obligation” means that . . . Landlord shall be required to
have . . . (1) a minimum of two (2) anchor stores (each having no less than 50,000
square feet of floor space) occupied, open for business and in operation on a
continuous basis; [and] (2) a minimum of seventy percent (70%) of the small shop
. . . retail and restaurant units of the Center occupied, open for business and in
13
CONCLUSION
The Court finds that the Leases contain broad force majeure provisions.
These provisions allocate risk for unforeseeable events to the Tenants. Based on
the great weight of authority in Delaware and in other jurisdictions, Regal is not
excused from its obligations as Guarantor pursuant to the Leases. Thus, the
doctrines of frustration of purpose, impossibility, impracticability, and breach of
quiet enjoyment, cannot survive a motion to dismiss. THEREFORE, Plaintiff’s
Motion for Partial Summary Judgement as to Liability on Counts II, III, IV, and V
is hereby GRANTED.
IT IS SO ORDERED.
/s/ Mary M. Johnston
The Honorable Mary M. Johnston
operation on a continuous basis[.] (b) A Deficient Occupancy Level shall exist if
the Co-Tenancy Obligation is not met[.] (c) For each period of Deficient
Occupancy Level . . . in complete substitution of Base Rent and Percentage Rent
which otherwise would be payable, Tenant shall pay to Landlord as “Co-Tenancy
Deficiency Rent” Fifteen Percent (15%) of Gross Sales during the Period of
Deficient Occupancy Level[.]
The Court finds that even if the co-tenancy provision applies, it is applicable to damages,
not liability.
14