Court Blocks Starbucks Plans to Close 77 Teavana Mall Locations

A Superior Court judge in Indiana has blocked Starbucks from closing 77 Teavana locations in malls operated by Simon Property Group.

In August, after Starbucks announced it would close all 379 Teavana locations, Indianapolis-based Simon, the largest shopping mall operator in the world, filed suit seeking a temporary and permanent injunction. In the suit Simon argued that the company “depends upon each tenant fulfilling the covenants in their respective leases. Crucially, each of Simon’s tenants promises that it will open and operate continuously for the entire term of its lease.” Only two of the leases expire next spring, some extend to 2027. Starbucks is not trying to void the agreements, only to close the stores. Lease payments for the remaining terms will be made in full. The mall operator acknowledged that many shops close under financial duress but “that obviously is not the case with Starbucks, which is one of the largest and most recognized companies in the world.”

The suit alleges that by closing the stores en masse Starbucks was “shirking its contractual obligations at the expense of Simon’s shopping centers and the dozens of communities they serve and support.” If Starbucks is allowed to “prematurely” break its lease, it could be forced to fill the vacancies with “less creditworthy tenant(s)” or less desirable tenants “who will only agree to less desirable lease terms, and/or a shorter-term lease,” according to the court filings. “Starbucks’ decision to close its Teavana stores is simply an effort to further increase its economic gains at the expense of others,” Simon said in the 18-page complaint.

Starbucks issued a statement expressing “disappointment” in the judge’s ruling and said it “will continue to focus on finding a resolution.” The company did not disclose whether it would appeal.

The injunction is a first and could establish precedent for other mall tenants. No court has previously forced a non-anchor tenant to continue operations.

The New York Post reported that Judge Heather Welch, in a 55-page order, found that the very profitable Starbucks could absorb the financial hit — estimated by Starbucks to be $15 million over five months — better than Simon could. The mall operator did not provide an estimate of how much the closings of the Teavana stores would cost.

The case is being closely watched by retailers and landlords alike amid a retail meltdown that has resulted in a record number of bankruptcies and more than 6,300 store closings this year, according to the newspaper. “If you are a tenant that has to close a bunch of stores that are based in malls, you are pretty scared after this ruling,” the newspaper reported, adding that industry sources suggested that other mall operators may now challenge Starbucks’ plans to close Teavana stores in their shopping centers.

Source: New York Post, Indiana Business Journal