Photo of Jennifer S. Romano

Jennifer S. Romano has a national litigation practice representing big box and specialty retailers against consumer class actions and in disputes with landlords relating to co-tenancy provisions, CAM charges, maintenance obligations and property damage. Jennifer is a frequent contributor to National Retail Tenants Association publications and presenter at NRTA conferences. She is a partner in Crowell & Moring’s Los Angeles office.

On September 3, 2013, the U.S. District Court for the Northern District of Illinois dismissed a class action complaint against Barnes & Noble seeking damages based on a data security incident, finding that the plaintiffs lacked standing to bring the claims. This decision reaffirms that retailers may be able to avoid damages for data breaches where the plaintiffs cannot allege or establish actual damages.

In October 2012, Barnes & Noble notified the public, through a press release and a notice on its website, that it had discovered hackers were stealing credit and debit card information from its PIN pad devices at 63 stores across the country. The hackers obtained the data by tampering with the PIN pad devices used to process transactions. Barnes & Noble made the announcement approximately six (6) weeks after it discovered the fraudulent activity. Barnes & Noble did not directly notify individual customers.  [Read more. . .]

Content for this post provided by Crowell & Moring partners Jeffrey L. Poston and Ethan P. Schulman, and Senior Counsel Robin B. Campbell.

On March 6, 2013, the United States District Court for the Northern District of California held that a putative class of LinkedIn premium users lacked standing to pursue state law unfair competition, breach of contract, and negligence claims resulting from a hacking incident. The court dismissed the complaint, concluding that the plaintiffs failed to establish any legally cognizable injury and any causation between the alleged incident and any alleged economic harm.

LinkedIn, the online community for professional networking, offers both free and premium paid accounts to consumers. The Privacy Policy applicable to both types of accounts provides that user information will be protected with “industry standard protocols and technology,” but notes that it provides no guarantee that LinkedIn’s security will be able to prevent all security breaches. On June 6, 2012, hackers infiltrated LinkedIn’s computer systems and posted 6.5 million user passwords and email addresses. LinkedIn subsequently updated its password encryption method to prevent future breaches.

A putative class of premium LinkedIn users filed an amended complaint alleging unfair competition, breach of contract, and negligence claims. LinkedIn filed a motion to dismiss for lack of standing, which the court granted.

Continue Reading Allegation of Data Breach Alone Insufficient to Sustain Claims Based on Inadequate Cybersecurity Under California Law

On January 24, 2012, the United States Court of Appeal for the Third Circuit ruled that printing just the month of a credit card’s expiration date on a customer receipt violates the federal Fair And Accurate Credit Transactions Act (FACTA). This is the first federal appeals court to address this issue and confirms that retailers may face significant exposure if they include any credit card expiration information (no matter how small) on a customer receipt.

The Court’s decision was in Long v. Tommy Hilfiger U.S.A., Inc., a nationwide class action filed against Tommy Hilfiger USA Inc. in Pennsylvania. The plaintiff sought statutory damages, punitive damages and attorneys’ fees based on the allegation that Tommy Hilfiger included a credit card expiration month (but not the year) on customer receipts. FACTA provides for statutory damages of up to $1000 for “willful” violation of the Act. Punitive damages and attorneys’ fees are also available for a “willful” violation regardless whether the consumer suffered any damages.

Although the Court of Appeals held that the inclusion of the expiration month on a receipt violated federal law, the Court nevertheless dismissed the plaintiff’s case after concluding that Tommy Hilfiger’s conduct was not “willful” and thus did not give rise to any relief sought by the plaintiff. The Court held that Tommy Hilfiger’s belief that FACTA did not prohibit printing the expiration month was objectively reasonable because FACTA does not explicitly prohibit the conduct, and even the lower court had interpreted the statute as permitting such conduct.

Tommy Hilfiger’s ultimate win should nevertheless serve as a caution to other retailers. The Court’s decision will likely be relied upon in the future for its broad interpretation of prohibited conduct under FACTA as well as its notice to retailers of this interpretation.

On May 5th, Crowell & Moring’s Retail Law partnered with the Association of Corporate Counsel (ACC) to host the first webcast of a 3-part retail law series: “Recovery Opportunities for Retailers: Turning A Retail Law Department Into A Profit Center in Retail Leasing, Global Sourcing and Antitrust Litigation.” The webcast was moderated by the chair of Crowell & Moring’s Retail Law practice, Greg Call, joined by Vice President and General Counsel of Hino Motors, Sanford “Sandy” Ring, Esq., and fellow Crowell & Moring Retail Law attorneys Jen Romano, Patty Wu, John Brew, and Dan Sasse. Thank you to those of you who joined us.

At the link is the PowerPoint presentation that accompanied the webcast. We will be announcing additional webcasts on retail issues in the near future.

Under many retail leases, the tenant is required to pay the landlord for electricity used to operate the retail store. Lease provisions regarding electricity charges are often complex or unclear, and provisions regarding how to allocate electricity use to each tenant and what rates to charge vary substantially. Often, retailers are charged for more electricity than they use and at rates that are far higher than what the landlord actually paid for the electricity.

At the link is an article my colleague, Greg Call, and I wrote regarding steps a retailer can take to investigate whether it is being overcharged for electricity and to pursue the landlord for relief.

This year, the United States Supreme Court is expected to decide whether a retailer can protect itself against class action lawsuits by including a single claim arbitration provision in its contracts with customers.

At issue before the United States Supreme Court is the case of AT&T Mobility v. Concepcion. The question to be decided is whether a retailer can enforce a provision in its contracts with customers that states all disputes will be handled through single-party arbitration, as opposed to class action litigation. This decision is particulary relevant to retailers that commonly use customer agreements to sell products and services, such as banks, fitness clubs, car rental companies, and Internet companies.

Continue Reading Supreme Court To Decide Whether Retailers Can Require Individual Arbitration of Customer Claims

As shopping center occupancy rates have decreased, enforcing co-tenancy rights has taken center stage for retailers. The key to enforcing rights under a co-tenancy provision is to rely on the plain language of the lease.

For example, in the past year, courts in Michigan and Georgia have ruled in favor of Rainbow, USA in co-tenancy disputes based on the precise language of co-tenancy provisions in the leases. In both cases, the court relied on the plain language of Rainbow’s leases to hold that Rainbow was entitled to pay reduced rent based on the landlord’s failure to meet co-tenancy requirements under the lease.

Continue Reading Co-Tenancy Disputes With Landlords Are Decided Based on the Plain Language of the Lease

Retail leases typically contain provisions allowing the landlord to charge the tenant a pro rata share of taxes paid by the landlord. The particular wording of the lease governs what the landlord can and cannot charge a tenant. Looking for ways to cut costs, more tenants are monitoring the taxes passed through by landlords and challenging certain charges.

Continue Reading Taxes May Not Be a Straight Pass-Through Under Retail Leases

In this troubled economy, co-tenancy provisions are playing a critical role in retail leases. The Wall Street Journal recently reported that retail tenants with co-tenancy rights in their leases are “eking out critical savings” to counter the drop in sales.[1] Vendors are offering services that track store closings at shopping centers for purposes of co-tenancy claims. Retailers are seeking reduced rents or even terminating leases when co-tenancy conditions are not satisfied.

As shopping centers reach unprecedented vacancy levels, are you doing everything you can to control costs by asserting co-tenancy rights? If your leases contain co-tenancy provisions or you are in a position to negotiate these terms in the future, the following four steps may help you cut costs in troubled times.

First, review your leases to identify co-tenancy provisions. Record any co-tenancy obligations in an easily accessible format, so that you can refer to these terms periodically to enforce your co-tenancy rights.

Second, investigate the facts to determine whether the co-tenancy conditions in your leases are satisfied. Have the anchor stores closed? Are they occupied by non-retail tenants? What are the vacancy rates at the shopping center? You need to gather the facts to determine whether you are entitled to reduced rent or other remedies based on co-tenancy provisions in the lease.

Third, if the co-tenancy conditions are not satisfied and you are entitled to relief under the lease, make a demand to the landlord. Be persistent. Demonstrate that not only is your claim solid, but you will pursue it if the landlord does not provide the requested relief.

Fourth, use this downturn in the economy to negotiate better co-tenancy terms in your leases. Due to high vacancy levels currently, your tenancy is valuable. This may be the time to use your leverage to negotiate valuable co-tenancy provisions for the future.

Step 1: Review your leases to identify your co-tenancy rights.
The first step in seeking savings based on co-tenancy rights is to read your leases. Identify co-tenancy conditions or obligations and think about what is required to satisfy them. There may be a co-tenancy provision relating to anchor stores. Does the lease require that certain anchor stores be occupied and open for business? Does it identify the tenants for the anchor stores or the type of business? Does it provide a list of alternate anchor stores if the identified stores vacate the property?

There also may be a co-tenancy provision relating to occupancy of the remainder of the shopping center. For example, there may be a condition that “80% of leasable space (excluding the anchor stores) is occupied by retail tenants which are open and operating.” Pay careful attention to the method for calculating the percentage. In determining the denominator, consider what is excluded. If space previously occupied by Mervyn’s now sits vacant, does the vacant space still get excluded as an anchor store? If the space previously occupied by Mervyn’s has been converted to a public library, does the library get excluded as an anchor store? Similarly, consider what is included in the numerator. Does the numerator include all space open for business or only space being used for retail sales? Does it include all leased space regardless whether it is open for business? These questions should be answered based on the lease language.

Once you have identified the co-tenancy conditions in the lease, next determine your remedy if the co-tenancy conditions are not satisfied. The lease may provide that the only remedy is the right to terminate the lease. Or, the lease may provide for reduced rent or the opportunity to “go dark.” Some leases provide that a tenant is entitled to the remedy immediately after the co-tenancy conditions are not satisfied. Other leases provide a grace period for the landlord or require the tenant to “elect” one of the available remedies. It is important to be familiar with your potential remedies and how and when you must assert them.

Step 2: Investigate the facts to determine whether the co-tenancy conditions are satisfied.
It is up to the tenant to investigate whether it has a viable co-tenancy claim against the landlord. Even if your lease provides that the landlord is required to notify you when co-tenancy conditions are not satisfied, you should not sit back and assume the landlord will do so.

There are many methods to investigate a co-tenancy claim. Some co-tenancy information can be gathered by going to the computer and searching the Internet. You often can learn a lot about a potential co-tenancy claim by looking at the shopping center website. A walk-through of the shopping center also can reveal co-tenancy facts. Store management can be asked to report on the tenants of the center and on the vacancies.

However, depending on the co-tenancy terms, in many situations you will have to submit an inquiry to the landlord to determine the facts supporting a co-tenancy claim. This type of request should be in writing. It should be as specific as possible and in most circumstances should include a request for occupancy information for every square foot of the center, including the name of the tenant and its business, the square feet occupied by that tenant and whether the tenant is open for business. If the lease provides that you are entitled to this information, you should cite to the specific provision in your letter. If the lease does not specifically provide for your right to obtain this information, do not be deterred. Ask for it anyway. You are entitled to the facts supporting the obligations under the lease. See PV Properties, Inc. v. Rock Creek Village Associates Ltd. Partnership, 549 A.2d 403, 410 (Md. Ct. Spec. App. 1988) (finding fiduciary obligation to provide backup for lease charges; “Reason and fairness require that the tenant be afforded some means of verifying the charges assessed against it.”).

Further, it is a good practice to regularly ask the landlord for occupancy information on a quarterly basis even if you do not suspect a co-tenancy claim. If the landlord refuses to provide the information in response to your requests, you can later argue that any delay in asserting your co-tenancy rights was a result of the landlord’s improper conduct.

Step 3: Convince the landlord of the strength of your claim and that you will pursue a lawsuit if the landlord does not provide the remedy you seek.
Once you have identified the basis for a co-tenancy claim, you will need to submit the claim to your landlord. State your claim in writing. Be clear about the grounds of your claim and the remedy you seek, and cite to the relevant provisions of the lease. If your lease requires you to “elect” a particular remedy, be clear that you are doing so under the lease. If you have multiple claims based on multiple leases against the same landlord, combine them in a single letter. A landlord may be more responsive if your claim is larger.

Be prepared for push-back from the landlord. The landlord may argue a different interpretation of the co-tenancy provision. See Rathbun v. Cato Corp., 93 S.W.3d 771 (Mo. Ct. App. 2002) (holding the term “similar type and size business” in a co-tenancy provision was ambiguous and its meaning must be determined based on evidence of the parties’ intent outside of the lease). Be prepared to explain your interpretation based on the language in the lease.

The landlord also may argue that you waived the co-tenancy rights by waiting too long to assert them. Be prepared with a justification for any delay. For example, some leases require the landlord to notify the tenant when co-tenancy conditions are not satisfied. In such cases, if the landlord failed to notify the tenant, any delay in asserting a co-tenancy right should not be the fault of the tenant.

Even if the landlord ignores your requests or continues to refute your rights to relief, be persistent and continue to state your case. If you do not convince the landlord that you are willing to pursue the issue in court, the landlord may feel no incentive to respond to your demands.

Finally, hiring a lawyer may be the only way to convince a landlord that you are willing to pursue your co-tenancy claim. When a landlord is faced with the prospect of hiring an attorney to defend a legal claim, a landlord may be more willing to negotiate a resolution of the dispute. However, if you threaten a lawsuit, be prepared to follow through. A landlord will remember if you fail to follow through on a legal claim and may be even less responsive to future claims.

Step 4: Look for opportunities to improve co-tenancy provisions in future leases.
Because of high vacancy levels at some shopping centers, tenants may have more leverage than before in negotiating favorable co-tenancy provisions. This may be an opportunity to include co-tenancy provisions in new or amended leases or improve them where appropriate.

For example, it is best to put the burden on the landlord when co-tenancy conditions are not satisfied. Avoid language providing that the tenant may “elect” certain remedies. Instead, provide that once the co-tenancy conditions are not satisfied, rent is reduced or some other remedy automatically takes effect. Further, it is optimal to include a requirement that the landlord notify the tenant when co-tenancy conditions are not satisfied. If the landlord fails to send the notice, the tenant has a solid defense for any delay in asserting a co-tenancy claim.

Finally, if you have ever been confused about the language of your co-tenancy provisions or you have noticed ambiguities, this may be a good time to clarify the language so that there is no dispute in the future.

Conclusion
As stores continue to close in shopping centers, now more than ever is the time to pay attention to co-tenancy provisions in retail leases. Review your leases; gather the facts; and submit demands for relief to your landlords if co-tenancy conditions are not satisfied. Enforcing co-tenancy rights can be a significant way to control costs.

[1] Elizabeth Holmes, Vanessa O’Connell and Kris Hudson, Empty Mall Stores Trigger Rent Cuts, Wall St. J., July 9, 2009 at B1. ~

Case: Reliastar Life Insurance Co. of NY v. Home Depot, U.S.A., Inc., 570 F.3d 513 (7th Cir. 2009) (applying New York law)

The One Sentence Summary: A federal court applying New York law holds that a tenant’s execution of an estoppel certificate creates no warranties about present or future conditions not known by the tenant at the time of execution; and court holds that constructive eviction relieves a tenant of the obligation to pay rent even where the tenant signed a “hell or high water” clause.

What They Were Fighting About: Home Depot entered into a lease providing that the landlord was responsible for the “building pad.” When the original landlord assigned the lease to a subsequent landlord, Home Depot signed an estoppel certificate providing: “Tenant has fully inspected the Premises and found the same to be as required by the Lease, in good order and repair, and all conditions under the Lease to be performed by the landlord have been satisfied; including but not limited to payment to Tenant of any landlord contributions for Tenant improvements and completion by landlord of the construction of any leasehold improvements to be constructed by landlord; . . . As of this date, the Mortgagor, as landlord, is not in default under any of the terms, conditions, provisions or agreements of the Lease and Tenant has no offsets, claims or defenses against the Mortgagor, as landlord with respect to the lease.”

At the time of the assignment, Home Depot also signed a Recognition Agreement including the following “hell or high water” clause: “Tenant agrees that notwithstanding anything in the Lease or this Agreement contained to the contrary, until Mortgagee notify [sic] tenant that the Assignment has been released, Tenant shall be unconditionally and absolutely obligated to pay to Mortgagee in accordance with the Assignment all rents, purchases payments and other payments of whatever kind described in the Lease without any reduction, set off, abatement, or diminution whatever.”

Two years after the assignment, Home Depot detected cracks in its store walls resulting from a defective building pad. Home Depot vacated the premises, stopped paying rent and claimed constructive eviction. The landlord/assignee filed suit against Home Depot for all moneys owed under the lease. Continue Reading Tenant Entitled to Claim Constructive Eviction Despite No Breach Statement in Estoppel Certificate and “Hell or High Water” Clause