Judge sides with Simon, bars Starbucks from closing Teavana stores

Simon Property Group Inc. has won a significant victory in its bid to stop Starbucks Corp. from closing 77 Teavana stores in its malls across the country.

Indianapolis-based Simon, the country’s largest shopping mall operator, sued Starbucks in August seeking temporary and permanent injunctions to prevent the coffee giant from breaching its leases—some of which extend as far as January 2027.

A Marion Superior Court judge has sided with Simon and granted the company’s request for the temporary injunction until the case is decided at trial, which is likely to occur next year.

“If the court were to allow Starbucks to close down its stores, abandoning obligations in the lease agreements, the court would be relieving Starbucks of the failed risk it took merely because Teavana has now proven to be unprofitable to Starbucks,” Judge Heather Welch wrote in her Nov. 27 decision.

Neither a spokesman for Simon nor a lawyer representing Starbucks returned messages seeking comment on the judge’s decision.

Seattle-based Starbucks announced in July that it planned to close all 379 of its Teavana stores in the next year, with most closures taking place in the spring of 2018.

In January 2013, Starbucks—led by then-CEO Howard Schultz—bought the Atlanta-based tea retailer for $620 million. At the time, Teavana had about 300 stores. Schultz predicted the business would swell in size and that his company "would do for tea what we did for coffee."

The prophecy never came to fruition. Starbucks argued to the judge that it will lose $15 million if Teavana is forced to stay open in Simon’s malls until October, if forced to wait that long for a final decision from the court.

Locally, Teavana has shops at Circle Centre mall, the Fashion Mall at Keystone, Castleton Square Mall and Greenwood Park Mall.

Welch said in her decision that she simply could award Simon the remaining rent owed for each of the 77 leases. But the amount would not adequately capture the harm Simon would suffer from the “sudden influx of unoccupied retail space.”

Welch’s decision hinged in part on continuous operations covenants included in Teavana’s lease agreements. The covenants require tenants, typically large retailers such as Starbucks, to operate in the leased premises continuously throughout the terms of the leases.

Simon claimed in its arguments that finding in favor of Starbucks would render futile any future attempts to enforce the covenants. The company already is struggling to fill mall space vacated by a slew of bankrupt retailers.

John Rulli, Simon’s president of malls and chief administrative officer, testified that the company’s malls have a total of more than 2 million square feet of vacancy due to bankruptcies on top of 500,000 square feet available from natural lease expirations.

For example, Simon submitted exhibits to the court showing that only 16 of the 72 retail stores closed as a result of The Limited bankruptcy have new tenants in them.

Starbucks, however, argued that no court has ever entered temporary or permanent injunctive relief to enforce continuous operations covenants against a non-anchor tenant.

“A review of the case law suggests Starbucks appears to be correct on this matter,” Welch wrote.

Welch directed Simon to post a $15 million security bond should the temporary injunction be found at trial to have been wrongfully ordered. The amount covers the $15 million Starbucks expects to lose by keeping the Teavana stores open until trial.

A pre-trial conference has been set for Dec. 20.