K-Mart Corporation v. Oriental Plaza, Inc.

875 F.2d 907 (1989)

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Nature of the Case

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Facts

P and D entered into the Lease on September 21, 1983. The lease had two key covenants: D would build no more than 10,000 sq. ft. of retail space in the parking area north of P's store (i.e., between its premises and the neighboring Pueblo Supermarket), and any such new construction would not deviate from an agreed site plan (Exhibit B of the Lease) without P's express written consent. In February 1986, D wrote to P's real estate department seeking approval of a contemplated development of retail space in the parking area. D requested 'a letter from P acknowledging the acceptance of these facilities.' P refused. D tried again and submitted a revised plan. P approved this plan. The government, through the Planning Board, turned D down and the design was never implemented. D tried again. D proposed a Bank depicted in the Center's northwest corner. The sketch showed three other retail buildings which were nonconforming. The cover letter directed P's attention exclusively to the proposed bank building and parking layout, noting that 'visibility is the same with exposure unaffected from all sides.' No mention was made of the retail buildings shown on the site plan. P forewarned that approval of the bank location would be contingent upon its receipt of 50% of the rental receipts from that development. The correspondence did not mention the other retail space depicted in the drawing. No agreement was reached, and the bank was never constructed. On March 20, 1988, construction got underway on three retail buildings in the parking area. These structures turned out to be similar to the ones depicted in the December 1986 site plan. P never gave any approval as it was not asked. After eleven weeks, P objected to the development as inconsistent both with the Lease and the April 1986 site plan. Two of the structures were at least 80% complete, and one was approximately 42% complete. P refused to halt the construction. P sued D. The court held a prompt hearing on the preliminary injunction. The court held that D had breached the Lease. It ordered injunctive relief in that 'P cannot recoup, even through legal damages, the injury to its goodwill caused by the visual obstruction of its store.' The court ordered D to raze the southernmost structure and to replace it with no fewer than 30 parking spaces within 60 days. The court allowed completion of the two restaurant buildings but permanently enjoined further development in the parking area except in strict compliance with the Lease. D appealed.