Starbucks Corp.’s plans to close all of its 379 Teavana retail locations by the end of January 2018 might be in trouble as a judge in Indiana last week granted a preliminary injunction, preventing the Seattle-based company from closing 77 of those locations in shopping malls.
Judge Heather Welch of the Indiana Commercial Court of Marion County Superior Court No. 1 on Nov. 27 found in favor of Simon Property Group, which owns, develops and manages shopping centers and other real estate properties, including 78 malls in 26 states with Teavana locations.
One of those leases has already expired, according to court documents, but leases at other locations extend as far into the future as Jan. 31, 2027, with only two more expiring before spring of 2018.
All of the leases contain a “continuous operation covenant,” requiring Teavana to operate with a full staff and full stock of merchandise for the duration of the lease.
“We are disappointed in the judge’s ruling. Our focus continues to be on finding a resolution,” a Starbucks representative said in an email.
A Simon Property Group spokesperson declined to comment.
Indianapolis-based Simon sued Starbucks on Aug. 21 following the company’s July announcement that it would close all its Teavana locations. Simon said Starbucks has no legal basis for breaking its leases.
Welch’s decision was based on her finding that Simon would suffer greater harm if the Teavana locations closed than Starbucks would if they remained open.
That harm included difficulty replacing the vacated stores with appropriate tenants, diminished image of Simon’s malls as well as its reputation with other tenants and consumers.
The court also found that Simon’s long-term and short-term planning and operations would be hindered if other companies followed Starbucks’ lead — “a strong possibility,” according to the ruling — and “dishonor their obligations under their leases, and attempt to close their stores if they feel their business is unprofitable or if they can find a better deal elsewhere.”
On the other hand, if Starbucks were required to continue operations through October 2018, it would lose no more than $15 million, according to court testimony cited in the ruling.
The finding also said that the monetary and operational challenges — re-establishing relationships with vendors that Starbucks began to wind down after its July announcement that it would close Teavana, rehiring staff, etc. — is “self-imposed” by Starbucks.
“Starbucks made a business decision to acquire Teavana in 2013,” the judge wrote. “Starbucks voluntarily entered into and assumed lease agreements — regardless of the financial success of Teavana — with Simon for each of the stores at issue and agreed to continuous operation covenants.”
The judge also determined that Starbucks “unilaterally” decided to announce the closing of Teavana stores in 2017 and winding down operations without communicating with Simon.
The court scheduled a pre-trial conference on the suit on Dec. 20.
Contact Bret Thorn at [email protected]
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