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City Center Realty Partners, LLC v. Macy's Retail Holdings, Inc.

United States District Court, D. Minnesota

September 13, 2017

City Center Realty Partners, LLC, Plaintiff,
Macy's Retail Holdings, Inc., Defendant.

          Kristin B. Rowell and Philip J. Kaplan, Anthony, Ostlund, Baer & Louwagie, for Plaintiff.

          Barbara P. Berens, Carrie L. Zochert, and Erin K. Fogarty Lisle, Berens & Miller, P.A., and Chad David Silker, Macy's Law Department, for Defendant.



         This matter is before the Court on the Motion to Dismiss [Doc. No. 6] filed by Defendant Macy's Retail Holdings, Inc. (“Macy's”). For the reasons set forth herein, Defendant's motion is granted.

         I. BACKGROUND

         Plaintiff City Center Realty Partners, LLC (“City Center”) filed this suit against Macy's, arising out of a dispute concerning the parties' negotiation for the potential sale of the Macy's building and parking garage on Nicollet Mall in Minneapolis (the “Property”). (See Compl. [Doc. No. 1-1].) Invoking diversity jurisdiction, City Center asserts four common law claims, under Minnesota law, against Macy's: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) promissory estoppel; and (4) unjust enrichment.

         A. Letter of Intent

         Plaintiff alleges that throughout most of 2016, “and even earlier, [it] worked with [Macy's] to purchase the Property from Macy's.” (Id. ¶ 1.) After several months of negotiation, in August 2016, the parties executed a Letter of Intent, for which Macy's was denominated the “Seller.” (Id. ¶¶ 1; 11.)

         The Letter of Intent “outline[d] the general terms and conditions” under which Macy's was “prepared to consider the sale of its interest in the [Property] . . . and to complete negotiations on a mutually acceptable [Purchase Agreement.]” (Letter of Intent at 1 [Doc. No. 10-1], Ex. A to Berens Decl.)[1] The parties acknowledged that the Letter of Intent was “in no way intended to be a complete or definitive statement of all the terms and conditions of the proposed transaction, ” but was instead subject to “the negotiation and execution of the Purchase Agreement.” (Id. at 5.) Thus, the parties recognized that but for limited exceptions, they were not legally bound to each other unless and until they fully executed the Purchase Agreement. (Id.) There is no dispute that the parties failed to enter into the Purchase Agreement.

         The exceptions to the otherwise non-binding portions of the Letter of Intent, i.e., the binding, obligatory provisions, include the following:

(1) the Purchaser's deposit of $500, 000 in Initial Earnest Money, held in escrow, (id. at 1, 5);
(2) a provision barring the Seller from negotiating for or accepting any offers to purchase or sell the property from any other person for a period of 30 days after the Letter of Intent was executed on August 15, 2016, i.e., until September 14, 2016, [2] (id. at 5);
(3) a Confidentiality Clause requiring both parties to maintain the confidentiality of the terms of the transaction, the contents of the Letter of Intent, and transaction documents; (see id.);
(4) portions of a Due Diligence Clause, noted below, regarding the Purchaser's physical inspection of the property within the initial 60-day Due Diligence Period, commencing from the Letter of Intent's date of execution; (see id. at 3, 5); and
(5) the return of the Purchaser's Initial Earnest Money if the parties failed to execute the Purchase Agreement. (Id. at 5.)
As relevant here, the physical inspection provision states:
During the initial 60-day Due Diligence Period, Purchaser may, in its sole discretion, conduct any testing with respect to the Property [that] Purchaser deems advisable, including, but not limited to environmental testing and roof and building inspections (the “Physical Inspection”); provided, however, that Purchaser shall (i) provide written notice of any non-intrusive work within 24 hours before such work, and (ii) provide written notice of any intrusive work, including the scope and work plans, which shall be approved and scheduled in advance with Seller's representative. Seller shall approve or disapprove of the work plans for intrusive work within five
(5) days of presentation of the scope of work plans. Soil sampling will not be permitted without Seller's prior written consent and unless such testing is clearly warranted; provided, however that such consent will not be unreasonably withheld, conditioned or delayed. At Seller's option, a representative of Seller may be present whenever Purchaser is at the Property.

(Id. at 3.) Based on the execution date of the Letter of Intent, the initial 60-day Due Diligence Period ran through October 14, 2016.

         As to other provisions of the Letter of Intent relevant to this lawsuit, the letter contains Macy's acknowledgment of City Center's intention to pursue “Historic Tax Credits” in connection with the proposed purchase. (Id.) While Macy's agreed to cooperate with this process, City Center's pursuit of the credits was to be undertaken “at no cost or obligation to [Macy's].” (Id.) If City Center failed to submit its application for tax credits within 60 days of August 15, 2016, i.e., October 14, 2016, Macy's had the right to terminate the Letter of Intent and the potential Purchase Agreement. (Id.) And, in the event that the Purchase Agreement was not executed, or there was no closing, City Center agreed to transfer to Macy's the ownership of any work and materials relating to the Historic Tax Credits. (Id.)

         B. City Center's Allegations

         1. Hindrance of Due Diligence Work

         City Center asserts that the Letter Agreement required Macy's to provide certain information to City Center during the Due Diligence Period, including “environmental reports concerning the Propert[y], ” “soil and engineering reports on the Property, ” and “such other documents which materially affect the development, management or ownership of the Property.” (Compl. ¶ 12.) But City Center alleges that two months into the Due Diligence Period, it independently learned of significant asbestos issues on the Property, which Macy's did not disclose, “despite its obligation to do so.” (Id. ¶ 13.) Morever, Plaintiff alleges that Macy's refused to permit it to conduct a comprehensive asbestos survey on the Property, and instead, slowly provided information to City Center concerning the asbestos problem. (Id. ¶ 14.) Further, the provided information “did not give City Center a complete picture of the issue, ” City Center alleges. (Id.)

         In addition, City Center alleges that Macy's prohibited it from speaking or interacting with the City of Minneapolis in order to obtain information related to the due diligence process, despite City Center's numerous requests to do so. (Id. ¶ 15.) Further, City Center alleges that the asbestos issues and Macy's refusal to let City Center obtain information from the City of Minneapolis unnecessarily delayed its ability to finalize the parties' Purchase Agreement and, in turn, the closing of the deal. (Id. ¶¶ 13, 15.)

         City Center asserts that the transaction process here was atypical for real estate transactions. (Compl. ¶¶ 1, 18.) In a typical purchase and sale transaction for real estate, Plaintiff alleges that “parties exchange a letter of intent, then they negotiate and execute a purchase and sale agreement which includes a future closing date, then they engage in a due diligence period between execution of the purchase and sale agreement and the closing, and then the purchaser closes on its purchase of the property.” (Id. ¶ 18; see also id. ¶ 1.) In its dealings with Macy's regarding the Property, however, City Center asserts that after the Letter of Intent was executed, “Macy's required City Center to conduct its due diligence at the same time that the parties negotiated the terms of their Purchase and Sale Agreement.” (Id. ¶ 18.) City Center alleges that this arrangement allowed Macy's to reap the benefits of City Center's due diligence efforts and to “shirk its responsibilities identified in the parties' comprehensive Purchase and Sale Agreement until the Due Diligence [P]eriod was over.” (Id.)

         Moreover, City Center alleges that between August and December 2016, while the parties negotiated the terms of the Purchase Agreement, City Center expended considerable sums of money toward the purchase of the Property. (Id. ¶ 19.) It asserts that Macy's was aware of these expenditures, and, “in fact required City Center to spend this money during the Due Diligence [P]eriod.” (Id.)

         2. Historic Tax Credit Application

         City Center identifies its work with respect to the Historic Tax Credit Application as an example of time-intensive work that Macy's required it to perform. (Id. ¶ 20.) Such work, City Center attests, was an important benefit to Macy's and would result in “an extra several million dollars in Macy's pocketbook for the transaction.” (Id.)

         On October 13, 2016, Macy's requested that City Center send to Macy's a draft of the Historic Tax Credit Application, which City Center had been working on “for a couple of months, ” but had yet to submit it to the State Historic Preservation Office. (Id. ¶ 21.) City Center alleges that its delay in submission was caused by Macy's failure to provide written consents from some of the property owners who had ground leases at the Property. (Id. ¶ 22.) City Center's Historic Tax Credit consultant had advised that such consents were necessary for the consideration of the application, or it would be rejected, resulting in delay. (Id.) City Center alleges that Macy's demanded “proof” that City Center “was in a position to submit the [Historic Tax Credit] application as soon as Macy's obtained the consents.” (Id. ¶ 23.)

         City Center emailed the requested information to Macy's, attached to a transmittal message stating that it was “providing this information to [Macy's] in confidence and with the understanding that Macy's wants to review it in order to make an independent determination of whether [ ] written consent of [the fee simple property owners] is necessary in order for [City Center] to submit the Application.” (Id. ¶ 24.) City Center further stated, “Macy's shall not use this information for any other purpose other than for evaluating whether [the property owner's] consent is required.” (Id.) Additionally, City Center indicated that once it obtained the property owners' consents, it would submit the application. (Id.)

         City Center alleges that after several weeks elapsed, it reminded Macy's that it was prepared to submit the application once Macy's provided the written consents. (Id. ΒΆ 25.) Macy's allegedly informed City Center that it was working to obtain the consents as quickly as ...

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