United States District Court, D. Minnesota
H.F.S. PROPERTIES, a Minnesota Limited Partnership, Plaintiff,
FOOT LOCKER SPECIALTY, INC., Defendant.
G. Harris, David G. Parry, and Benjamin D. Eastburn, Stinson
Leonard Street LLP, Counsel for Plaintiff.
J. Hartnett, IV, and Kyle R. Hardwick, Faegre Baker Daniels
LLP, Counsel for Defendant.
MEMORANDUM OF LAW & ORDER
Michael J. Davis United States District Court Judge
matter is before the Court on the parties' cross-motions
for partial summary judgment. [Docket Nos. 25, 30] The Court
heard oral argument on September 30, 2016.
a landlord-tenant dispute regarding the Woolworth Building
(“Building”), located at 81 7th Place East, St.
Paul, Minnesota. Plaintiff H.F.S. Properties, a Minnesota
Limited Partnership (“HFS”) is the owner and
landlord of the Building. Defendant Foot Locker Specialty,
Inc. (“Foot Locker”) was the tenant. (Foot Locker
was formerly known as F.W. Woolworth Company, but will be
referred to as Foot Locker throughout.) Generally, HFS claims
that Foot Locker failed to keep the Building in good repair.
Currently before the Court is the question of the measure of
damages for HFS's claims.
The 1920 Lease
1, 1920, lessor Henry Stein leased a parcel of land in St.
Paul, Minnesota, to lessee The Golden Rule, a Minnesota
corporation. (Parry Decl., Ex. A, 1920 Lease.) The 1920 Lease
has a term of 95 years and expired on June 30, 2015.
(Id. at 1.) The 1920 Lease defines the
“premises” under the lease as the real property
together with any building or buildings thereon, and any and
all appurtenances thereto. (Id.)
Article 2 of the 1920 Lease provides that the lessee agrees:
To keep said premises and the appurtenances thereof in good
order and repair during the said term, and faithfully to keep
and observe all statutes and ordinances in force, relating to
said leased premises, or the use thereof.
Article 4 provides that the lessee may remove, take down or
alter any other building or buildings now or hereafter to be
placed upon said demised premises, but in such event, or in
the event of the destruction of any building or buildings,
the lessee shall replace the same by a building or buildings
of at least equal value, which shall be maintained in the
same manner as herein stipulated as to the original
buildings, and it shall become a part of the realty belonging
to the lessor, the same as the original buildings, subject to
the leasehold interest therein of the lessee herein, and
lessee may retain as its own property any and all material of
the building or buildings so taken down or removed, and not
used in the construction of said new or completed building.
The 1949 Lease
9, 1949, Tenant Foot Locker leased the lot adjoining the lot
named in the 1920 Lease from six individuals, collectively
referred to as “Landlord.” (Parry Decl., Ex. B,
1949 Lease.) The 1949 Lease expired on June 30, 2015.
(Id., Art. 3.) The premises governed by the lease
consisted of the real property plot “with the buildings
now or hereafter constructed upon said premises . . .
together with all alley rights, if any, easements, rights and
appurtenances in connection therewith or thereunto
belonging.” (Id., Art. 2.)
Article 12 of the 1949 Lease, the Landlord procured an
assignment of the lessee's interest in the 1920 Lease to
Foot Locker so that Foot Locker became the
successor-in-interest to the lessee's interest in the
Article 14 of the 1949 Lease provides:
The Tenant agrees to commence demolition of the existing
building and to construct a new building of at least three
(3) stories with basement to cover substantively the entire
demised premises and adjoining premises [covered by the 1920
Lease] prior to August 1, 1958, with reasonable additional
time thereafter in the event the Tenant is delayed by causes
beyond the reasonable control of the Tenant. The Tenant shall
be entitled to all salvage from demolition of the existing
Under Article 5:
The Tenant agrees to deliver to Landlord physical possession
of the demised premises upon the termination of the term
hereof or any extension thereof, in good condition, wear and
tear, damage by fire, or damage from any other cause not
directly attributable to the negligence of the Tenant
7 provides that the tenant can alter the premises, including
by making structural changes and including that the Tenant
“may from time to time during the term hereof remove
walls.” However, “[a]ny such alteration,
additions and changes, and any new building which shall
remain on the demised premises at the end of the term of this
lease . . . shall be considered as improvements to and become
a part of the real estate of the Landlord, and the Tenant
shall have neither the right nor the obligation to remove the
same, nor change such structure or restore the premises to
the condition in which they were originally.”
Article 8 provides, in relevant part:
Any trade fixtures, equipment and other personal property
installed in or attached to the demised premises by and at
the expense of the Tenant shall remain the property of the
Tenant, and the Landlord agrees that the Tenant shall have
the right at any time, and from time to time, to remove any
and all of its trade fixtures, equipment, and other personal
property which it may have stored or installed in the demised
premises, including but not limiting the same to counters,
shelving, show cases, mirrors, slides and air-conditioning,
cooling and other moveable machinery.
Article 13 provides, in relevant part:
The Tenant further agrees that if the building on the demised
premises is damaged or destroyed by fire or the elements . .
. that the Tenant will repair or restore the same to
substantially the same condition as existed before such
damage or destruction, or may replace the same with a
building of at least equal value to the one damaged or
Construction of the Woolworth Building
1955, Foot Locker constructed the Woolworth Building on the
two adjoining lots covered by the 1920 Lease and the 1949
Lease. (Compl. ¶ 18; Parry Decl., Ex. D, Foot
Locker's Objections and Responses to Plaintiff's
First Set of Interrogatories and Requests for Admission at
3-4.) Foot Locker operated a Woolworth's retail store in
the Woolworth Building between 1956 and 1993 under the 1920
and 1949 Leases. (Id. at 7; Parry Decl., Ex. F, Yost
Dep. 16-18.) The Woolworth Building has a basement and three
above-ground floors, totaling approximately 50, 000 square
feet. There are no windows on the second floor and minimal
windows on the third floor. The third floor and basement are
only accessible by stairs or a freight elevator. (Hartnett
Decl., Ex. 2 at HFS4584-85; Hartnett Decl., Ex. 3.)
the two leases, Foot Locker paid all costs associated with
the Building, such as taxes and insurances, and paid $65, 000
per year in rent through June 30, 2015. (Hartnett Decl., Ex.
1 at HFS1715.)
1988, the St. Paul Port Authority advised that, if a
negotiated sale of the Building could not be made, it would
acquire the Building by eminent domain in order to redevelop
the property. (Hartnett Decl., Ex. 4.) In 1990, the previous
landlord and Foot Locker executed an agreement to sell the
Woolworth Building to a developer for $1.5 million,
approximately $550, 000 of which would go to Foot Locker to
buy out its leasehold interest. (Hartnett Decl., Ex. 5.)
However, the sale fell through.
The Woolworth Building's Initial Disuse
Locker ceased occupying the Woolworth Building on August 1,
1993, and the Building was unoccupied until April 2, 1998.
(Parry Decl., Ex. D, Foot Locker's Objections and
Responses to Plaintiff's First Set of Interrogatories and
Requests for Admission at 7.) From April 2, 1998, through
December 31, 2000, Foot Locker entered a sublease with
McGough Construction Co., Inc. (“McGough”) to
convert the Woolworth Building into construction offices.
(Id.; Hardwick Decl., Ex. 1.) McGough built more
than a dozen new rooms in the Woolworth Building, ran HVAC,
electric and other services to these rooms, and installed a
new roofing membrane on the building. (Hardwick Decl., Ex. 1
at ¶ 712; Hardwick Decl., Ex. 2 at ¶ 714,
FL768-70.) The City of St. Paul (the “City”)
approved McGough's work and issued a new Certificate of
Occupancy after the work was completed, on July 16, 1998.
(Hardwick Decl., Ex. 3 at HFS1593.)
HFS's Purchase of the Property
owns the Golden Rule Building, which is adjacent to the
Woolworth Building. (Hartnett Decl., Ex. 6, HFS 30(b)(6) Dep.
74.) HFS first attempted to acquire the Woolworth Building in
1998 in order to demolish it and convert the property into a
parking lot. (Id. 68-70.)
1998, HFS obtained an appraisal valuing the Woolworth
Building's land at $565, 000 and the leasehold and
discounted future rents at $500, 000. (Hartnett Decl., Ex. 6,
HFS 30(b)(6) Dep. 72-73; Hartnett Decl., Ex. 2 at HFS4634.)
The appraisal stated: “The property has substantial
functional obsolescence and significant deferred
maintenance;” and “[c]onsiderable market research
has concluded that the Highest and Best Use of the building
is to demolish the existing improvement and redevelop the
land to its Highest and Best Use.” (Hartnett Decl., Ex.
2 at HFS4611, 4634.)
1999, HFS bought the property that was the subject of the
1920 and 1949 Leases. (Parry Decl., Ex. E, HFS's Answers
and Objections to Defendant's First Set of
Interrogatories at 9-10.) For $1.2 million, HFS received the
land and an assignment of both Leases and became the
successor-in-interest to the lessor's interest in the
1920 Lease and the Landlord's interest in the 1949 Lease.
(Id.; Hartnett Decl., Ex. 6, HFS 30(b)(6) Dep.
87-88) HFS acknowledges that there is no clause in either
lease that required Foot Locker to occupy the Woolworth
Building. (Hartnett Decl., Ex. 6, HFS 30(b)(6) Dep. 58-59.)
September 1999, HFS engaged an architect to develop plans
that would require demolition of the existing Woolworth
Building. (Hartnett Decl., Ex. 6, HFS 30(b)(6) Dep. 91-92;
Hartnett Decl., Ex. 12.) From 1996 through October 2014,
Patricia Wolf, a limited partner in HFS and owner of the
property management company that manages both the Golden Rule
Building and the Woolworth Building, was the primary
negotiator on behalf of HFS with respect to Foot Locker's
leasehold interest in the Woolworth Building. (Hartnett
Decl., Ex. 6, HFS 30(b)(6) Dep. 13, 16; Hartnett Decl., Ex.
8, Wolf Dep. 16.)
The Second Period of Vacancy
Locker left the Building unoccupied from January 1, 2001,
until the surrender of the Building to HFS on June 30, 2015.
(Parry Decl., Ex. D, Foot Locker's Objections and
Responses to Plaintiff's First Set of Interrogatories and
Requests for Admission at 7.)
HFS or the City identified a maintenance issue with the
Woolworth Building, Foot Locker resolved the issue. (Hardwick
Decl., Ex. 4, Maletz Dep. 16, 52-53.; Hartnett Decl., Ex. 6,
HFS 30(b)(6) Dep. 33-36.) Foot Locker arranged for a
consultant, Mark Wange, to perform inspections of the
Woolworth Building twice a month. (Hardwick Decl., Ex. 4,
Maletz Dep. 19-20.) Foot Locker made a business decision to
defer some repairs and maintenance on the Woolworth Building,
with the aim of negotiating an end of ...