4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 1 of 12
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1 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 1 of 12 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA FLORENCE DIVISION CASE NO. LOWES FOODS, LLC, Plaintiff, v. BURROUGHS & CHAPIN COMPANY, INC.; GRANDE DUNES DEVELOPMENT COMPANY, LLC; and MYRTLE BEACH FARMS COMPANY, INC., COMPLAINT (Jury Trial Requested) Defendants. Lowes Foods, LLC ( Lowes ), complaining of Defendants Burroughs & Chapin Company, Inc. ( B&C ), Grande Dunes Development Company, LLC ( GDDC or Landlord ), and Myrtle Beach Farms Company, Inc. ( MBF ) (together, Defendants ), alleges and says as follows: PARTIES 1. Lowes is a North Carolina limited liability company with its principal place of business in Winston-Salem, North Carolina. Lowes is registered to do business in South Carolina and leases several properties in South Carolina, including in Horry County. 2. B&C is a South Carolina corporation with its place of business in Myrtle Beach, South Carolina. On information and belief, B&C is the corporate parent of and exercises control over GDDC and MBF. 3. GDDC is a South Carolina limited liability company with its principal place of business in Myrtle Beach, South Carolina. 1
2 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 2 of MBF is a South Carolina corporation with its principal place of business in Myrtle Beach, South Carolina. 5. Lowes and GDDC entered into an agreement for the lease of property to be used as a retail grocery store in Myrtle Beach, Horry County, South Carolina (the Lease ), and that Lease is the subject matter of this lawsuit. JURISDICTION AND VENUE 6. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 1332, as the amount in controversy exceeds $75,000, exclusive of interest and costs, and is between citizens of different states. 7. Venue is proper in this judicial district pursuant to 28 U.S.C. 1391, as all Defendants reside in this district, and a substantial part of the events giving rise to this matter occurred in this district. 8. This Court has personal jurisdiction over Defendants pursuant to Fed. R. Civ. P. 4 and S.C. Code Ann FACTS 9. On September 15, 2006, Lowes and GDDC entered into the Lease, providing the terms under which Lowes would take possession of retail space at the Grande Dunes Marketplace, 970 Cipriana Drive, Myrtle Beach, South Carolina (the Premises ), in exchange for monthly payments of rent and the performance of other obligations. The Lease was signed by Douglas P. Wendel, President and CEO of GDDC, on behalf of GDDC. A copy of the Lease is attached as Exhibit A. 10. The term of the Lease commenced on September 17, 2008 and is scheduled to expire on September 16,
3 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 3 of At the time the Lease was executed, B&C, though various affiliates including GDDC and MBF, owned or controlled a large amount of property surrounding the Premises and was in the process of acquiring additional property in the area. B&C was developing the area as the Grande Dunes community, made up of a variety of residential, retail, commercial and recreational properties and projects. 12. Prior to execution of the Lease, Lowes discussed with Defendants two critical issues regarding the Lease and the grocery store to be operated in the Premises. First, it was important to Defendants that the Lowes store in the Premises be a high quality, four-star project befitting the Grande Dunes development. Second, it was critical to Lowes that the Lease contain a radius restriction protecting Lowes from the development of a competing grocery store within a two-mile radius of the Premises. 13. Those issues were the subject of a May 19, from Jeffrey LeForce, Chief Commercial Real Estate Officer for B&C, to Roger Henderson, Vice President of Real Estate for Alex Lee, Inc., which is Lowes corporate parent. Mr. Wendel, GDDC s President and CEO, was copied on the May A copy of the is attached as Exhibit B. 14. Mr. LeForce attached a draft letter to the May 19 that Defendants had drafted for [Mr. Henderson s] consideration. The letter, according to Mr. LeForce s , was intended to show the [B&C] Board that we are talking about a true long-term relationship between Lowes and B&C for Grande Dunes and other locations. 15. The letter itself, which was drafted by Defendants with the expectation that it would be signed by Mr. Henderson and sent to Mr. Wendel to be presented to the B&C Board of Directors, reflected the importance of the two issues noted above. Defendants proposed that Mr. Henderson aver that we both had to be brutally honest in our dialog to understand each other s 3
4 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 4 of 12 perspective and work especially hard to reach agreement on them. During this dialog, we were able to establish a solid foundation of trust and confidence that will allow us to do many more deals together. 16. With respect to the radius restriction that was of vital concern to Lowes, Defendants proposed that Mr. Henderson make the following statement: As we have discussed, this is a standard item in all of our leases and you have had this in other grocery stores that you have developed. We realize that most developers will not build a store on top of a store they just built and leased. This just makes good business sense. If we thought that our sales would be diminished by even 25% because of another store being built, we would not agree to a lease. There are a few developers, however, that will do this and we must protect ourselves. It is recognized that your current leadership would not spend over $6 million on a new store and then build another competing store in the same market. Future leadership of the Company, however, could change and we must protect ourselves from the potential that they might not be as clearheaded. A radius restriction provision was a requirement for us to enter into any of the leases with B&C. (Emphases added.) 17. Lowes understood that Defendants intended to use the proposed letter to demonstrate to the B&C Board the importance of the radius restriction to Lowes and, thus, to convince the Board to approve the Lease as well as other leases that B&C was then in the process of negotiating with Lowes. 18. Mr. Henderson responded to the May 19 on May 20, Mr. Henderson appended a version of the letter with his proposed revisions. A copy of the May 20 and revised letter is attached as Exhibit C. 19. To supplement the language proposed by Defendants in the letter, Mr. Henderson added: I prefer to look at the Landlord/Tenant relationship almost as a partnership, such that each trusts the other to look after the other s best interest, and [s]haring a location with a competitor materially impairs a key component of these strategies. Mr. Henderson also revised a sentence initially drafted by Defendants (and quoted above) to provide: But, if we believed 4
5 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 5 of 12 our sales assumptions were off by even 25% because of another store being built, we would not agree to a lease. The other language in the letter regarding the radius restriction was largely unchanged from the version drafted by Defendants. 20. On June 5, 2006, Mr. Henderson ed Mr. LeForce to ask what happened at the board meeting. Mr. LeForce responded on the same date: [T]he Board meeting and Shareholder meetings went well, thank you. He added, Your letter to Doug was received well by the Board and led into much dialogue on partnership and fairness. The general lease terms were discussed and to a large extent the Board focused on the Grande Dunes location and the reiteration and insistence by our Board that Grande Dunes needs to be protected and enhanced. Mr. LeForce stated further: The Board does want to see a fair partnership occur between our companies and they are excited, as is management, about our opportunities together. Given that these are the first leases that we have developed together and Grande Dunes being involved, there is more sensitivity and scrutiny. But, in general, our Board was positive and wants to see a fair deal worked out between us that can be fruitful for both for many years to come. A copy of the June 5 exchange is attached as Exhibit D. 21. Lowes viewed the communications described above as a clear representation by Defendants that (1) they knew the importance of the radius restriction to Lowes, (2) they knew Lowes would not enter into the Lease if it thought its sales might be diminished as a result of a competing grocery store within the radius restriction, and (3) they knew the radius restriction must be effective throughout the term of the Lease. 22. Accordingly, and in reliance on these representations, Lowes signed the Lease on November 3, Mr. Wendel had previously signed the Lease for GDDC on September 26, Consistent with the parties mutual expectations, Section of the Lease 5
6 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 6 of 12 contains the following provision: In addition, Landlord, any entity which controls, is controlled by or under common control with Landlord, any entity which acquires all or substantially all of Landlord s assets, or Landlord s affiliates, successors or assigns (collectively, the Landlord Entities ), shall not (directly or indirectly) develop a supermarket on any property within a radius of two (2) miles from any portion of the Demised Premises Lowes would not have entered into the Lease without this provision, and Lowes understood, based on the communications described above, that Defendants knew this provision must remain effective throughout the term of the Lease to adequately protect Lowes interests. 25. Consistent with Lowes commitment to Defendants before the Lease was formed, the Lowes grocery store occupying the Premises is a high-end, four star store befitting an upscale shopping center. Accordingly, Lowes has made a greater than normal financial investment in the store, and the radius restriction is essential to protect Lowes sales and justify the substantial investment made by Lowes to comply with Defendants demand. 26. In or about December 2013, B&C, through its various affiliates, sold a substantial amount of its property within the Grande Dunes development to LStar Management ( LStar ). Included in the sale was a tract of land owned by MBF, located at the northwest corner of 82 nd Avenue North and North Kings Highway in Myrtle Beach, less than one mile from the Premises (the New Development ). B&C did not, however, sell to LStar the property on which the Premises are located. 27. The press release announcing the acquisition states that B&C chose LStar as successor-owner due to its financial strength, development track record and the firm s stated commitment to ongoing stewardship of this premier coastal community. LStar likewise affirmed its commitment to a long-term strategy of exceptional stewardship of this unique property. 6
7 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 7 of On October 31, 2014, LStar issued a press release stating its intention to develop a new commercial center at the New Development, anchored by a grocery store of approximately 45,000 feet. 29. A grocery store of this size and in this location would directly compete with Lowes store and is precisely the type of development that the radius restriction in the Lease was intended to prohibit. In fact, B&C and Lowes discussed the New Development as a possible location for the Lowes store before they agreed to site the store at the property on which the Premises are located. 30. On November 7, 2014, Lowes sent a letter to B&C s Chief Legal Officer advising Defendants that Lowes would consider the development of the competing grocery store described by LStar in its press release to be a violation of Landlord s obligations under Section of the Lease. Lowes demanded that Defendants continue to take all steps to protect the commitment and investment Lowes Foods has made in Grande Dunes. A copy of Lowes November 7 letter is attached as Exhibit E. 31. B&C responded to Lowes letter on December 30, 2014, disagree[ing] with Lowes Foods assertion and describing Lowes complaint regarding Defendants violation of the Lease as not ripe. B&C further advised that, in its view, [t]he property upon which the [New] Development would be constructed is not owned by Landlord, nor is it owned by an entity that controls, is controlled by, or is under common control with Landlord or that acquired substantially all of Landlord s assets. A copy of B&C s December 30 letter is attached as Exhibit F. 32. Lowes responded by letter dated January 23, 2015, in which Lowes (1) disagreed with B&C s contention that the issue is not ripe, (2) demanded that B&C provide support for its 7
8 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 8 of 12 contention that LStar did not acquire substantially all of GDDC s assets, and (3) demanded again that Defendants remedy their apparent breach of the Lease by taking action to prevent LStar from building a competing grocery store at the New Development before the damage to Lowes becomes irreparable. A copy of Lowes January 23, 2015 letter is attached as Exhibit G. 33. As of the date of this Complaint, Defendants have not responded to Lowes January 23 letter. 34. Lowes is now informed that a 45,000 square foot Publix grocery store is under construction at the New Development. The Publix store will compete directly with Lowes and would have been barred by Section of the Lease. According to press reports, the Publix is scheduled to open in the summer of herein. FIRST CLAIM FOR RELIEF (Fraud in the Inducement) 35. Lowes incorporates and realleges the preceding paragraphs as if fully set forth 36. Defendants made certain representations to induce Lowes to enter into the Lease and to make a greater than normal investment in the Grande Dunes store. Those representations include but are not limited to: (1) Defendants knew the importance to Lowes of the radius restriction in Section of the Lease; (2) Defendants knew that Lowes would not have entered into the Lease without the protection afforded by that provision; and (3) Defendants intended that the radius restriction would protect Lowes throughout the term of the Lease. 37. Each of the representations listed above was false, and Defendants also made other false representations to induce Lowes to enter into the Lease. 38. Each of the representations listed above, as well as the other false representations made by Defendants, was material to Lowes decision to enter into the Lease. 8
9 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 9 of Defendants subsequent sale of the New Development to LStar, with no regard for the radius restriction and with no effort to protect Lowes as Defendants had promised to do, demonstrates that Defendants knew of the falsity or had reckless disregard of the truth or falsity of each of the representations listed above, as well as the other false representations made by Defendants. 40. Defendants intended that Lowes act upon each of the representations listed above, as well as the other false representations made by Defendants. 41. Lowes did not know of the falsity of the representations listed above or the other false representations made by Defendants. 42. Lowes relied on the truth of the representations listed above and the other false representations made by Defendants in making its decision to enter into the Lease. 43. Lowes had a right to rely on the truth of the representations listed above and the other false representations made by Defendants in making its decision to enter into the Lease. 44. Lowes has suffered and will continue to suffer consequent and proximate injury as a result of the misrepresentations listed above and the other misrepresentations made by Defendants. herein. SECOND CLAIM FOR RELIEF (Breach of Contract) 45. Lowes incorporates and realleges the preceding paragraphs as if fully set forth 46. The Lease is a valid and binding contract. 47. The radius restriction in Section of the Lease applies not just to GDDC, but also to any entity which controls, is controlled by or under common control with [GDDC]. B&C controls GDDC, and is therefore contractually bound by Section of the Lease to the 9
10 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 10 of 12 same extent as is GDDC. Likewise, MBF is under common control with GDDC through B&C, and is therefore also contractually bound by Section of the Lease to the same extent as is GDDC. 48. Defendants breached their contractual obligations under the Lease by directly or indirectly developing a supermarket, through the sale of the New Development to LStar, on property within a two mile radius of the Premises. 49. Defendants further breached the duty of good faith and fair dealing implied in the Lease by, among other things, failing to protect Lowes from a competing grocery store in the manner required by the Lease and as was expected by the parties at the time the Lease was formed. 50. Lowes has satisfied all of its contractual obligations under the Lease. 51. Lowes has been substantially and materially damaged by Defendants breach of the Lease in an amount in excess of $75,000. herein. above. THIRD CLAIM FOR RELIEF (Breach of Contract Accompanied by a Fraudulent Act) 52. Lowes incorporates and realleges the preceding paragraphs as if fully set forth 53. Defendants breached the Lease for the reasons stated in Paragraphs 44 through Defendants intended to defraud Lowes through their breach of the Lease. 55. Defendants breach of the Lease was accompanied by fraudulent acts, including but not limited to Defendants dishonesty and unfair dealing toward Lowes by selling property within a two mile radius of the Premises to LStar without first advising Lowes of the sale and without protecting Lowes interests as reflected by Section of the Lease. 10
11 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 11 of 12 FOURTH CLAIM FOR RELIEF (Unfair Trade Practices S.C. Code Ann ) 56. Lowes incorporates and realleges the preceding paragraphs as if fully set forth herein. 57. Defendants willfully and knowingly engaged in unfair and deceptive acts by, among other things, allowing the sale of property to LStar without protecting Lowes rights and interests as reflected by Section of the Lease. 58. Defendants unfair and deceptive acts were committed in the conduct of trade or commerce. 59. Defendants unfair and deceptive acts affect the public interest and demonstrate the potential for repetition. 60. Lowes has suffered and will continue to suffer monetary or property loss in an amount in excess of $75,000 as a result of Defendants unfair and deceptive acts. REQUEST FOR JURY TRIAL 61. Lowes respectfully requests a jury trial of the claims presented herein. WHEREFORE, having set forth its claims, Lowes prays as follows: 1. That the Court enter judgment that the Lease is null and void and that neither Lowes nor its parent company Alex Lee, Inc., has any further obligations whatsoever thereunder, or for other guarantees made in connection with the Lease, on account of the Defendants fraud in the inducement; 2. That the Court enter judgment against Defendants both individually and jointly and severally for the full extent of damages that Lowes has suffered as a result of the allegations set forth above, and that Lowes have and recover the full amount of its actual damages, a trebling 11
12 4:16-cv RBH Date Filed 02/04/16 Entry Number 1 Page 12 of 12 of those actual damages, and reasonable attorneys fees and costs; and proper. 3. That the Court award to Lowes such other and further relief as it deems just and Respectfully submitted this, the 4th day of February, /s/ Andrew R. Hand Andrew R. Hand Fed. Bar No MCGUIREWOODS LLP 201 North Tryon Street, Suite Charlotte, North Carolina Telephone: (704) Facsimile: (704) ahand@mcguirewoods.com Counsel for Lowes Foods, LLC 12
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