Westfield drops lawsuit against Benderson, Dillard’s in Sarasota mall redevelopment

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(This story is available for freelance opportunities.)

By Charles Schelle

A prolonged lawsuit has been dropped that kept the Westfield Southgate mall in Sarasota, Fla., from being fully redeveloped into Westfield Siesta Key.

Whether it was Dillard’s, Benderson Development’s or Westfield’s fault would have been determined in a jury trial if the case would have been allowed to proceed.

At the very least, the existence of a legal battle delayed redevelopment because why would Benderson Development, who owns the former Dillard’s, work with the operators of Southgate to redevelop that parcel as part of a mall redevelopment when they are being sued and might have had to pay damages if it lost a trial?

And if one of the arguments in a lawsuit is that all of this prevented redevelopment of Southgate from moving forward, it would play well that no matter what, Westfield not to proceed with the added wings and plaza during the lawsuit.

On Aug. 8, 2014, Westfield sued Benderson Development, Taubman Centers and Dillard’s, alleging that those three companies used inside knowledge to attract Dillard’s to build a new store in the also-new The Mall at University Town Center in northern Sarasota County.

Westfield argued in court documents that it was sharing redevelopment information with Dillard’s to expand their store and upgrade offerings with Southgate’s redevelopment to rebrand the mall into Westfield Siesta Key and played the company to instead close the store and go to the Mall at UTC, which is a joint project with Manatee County-based Benderson Development and Taubman.

And Westfield additionally argued that since the overall mall’s expansion was predicated on Dillard’s giving the OK, a withdrawal of consent stalled the continued redevelopment, according to Westfield’s complaint. Without that consent, the mall legally could not redevelop, Westfield argued.

“On April 21, 2014, Dillard sent a letter to the City’s Planning and Development Department purporting to withdraw the Consent of Owner it had already executed nearly five years earlier,” Westfield wrote in its complaint.

Westfield wrote in the complaint that it had restaurants and retailers ready for its new plaza and new retail spaces for expansion.

“In connection with the Expansion, Southgate has secured several prominent restaurants to operated locations within the expansion area,” Westfield argued. “It also has secured other high-end specialty tenants to operate in the existing Mall site.”

To spice up the intrigue, Benderson bought Dillard’s building and parcel, attached to Southgate, on Oct. 6, 2014, two months after the lawsuit was filed. (I’ll get to why this lawsuit hasn’t been reported until today.)

However, apparently something must be in the works to resolve this amicably because on Friday, May 27, Westfield voluntarily dismissed the lawsuit. It probably would be worth more to Westfield to find a way to redevelop the property than to collect damages in a lawsuit after all of these delays.

It’s an intriguing inside look at how four retail powerhouses — Westfield, Taubman, Benderson  and Dillard’s — do business to remain competitive and how an existing mall tried to avoid losing ground to the first new mall built in the U.S. in years. The Mall at UTC opened Oct. 16, 2014.

What if Dillard’s expanded at Southgate? What if it did turn into a clearance center? Would UTC have been without Dillard’s as an anchor? Did Southgate lose committed tenants when Dillard’s closed?

All interesting questions out of the court documents and wondering what could have been. Keep in mind that Westfield previously sued Benderson and its mall partner at the time, Forbes Co., in 2007 to block UTC.

The voluntary lawsuit dismissal came just days after the International Council of Shopping Centers’ Retail Real Estate Convention, or ReCon, in Las Vegas. This is where major deals are put into play. Both Benderson and Westfield had strong presences there, as they have had historically.

Westfield had multiple extensions since January to file a fourth amended complaint after a magistrate judge determined that only the first two counts were legally sufficient—breach of operating agreement and breach of acting in good faith—and the other counts couldn’t be tried.

Why the Fuss

2000px-The_Westfield_Group_logo.svgBy filing the suit, Westfield revealed its plans and its side of the story. As expected, Benderson, Taubman and Dillard’s all denied the claims. Taubman and Dillard’s also filed motions saying they shouldn’t be part of the suit, but the initial filings continued.

This much we know: Westfield’s completed redevelopment of Southgate into Siesta Key has stalled for the last two years. While a few minor retailers have moved in and Saks Fifth Avenue has been turned into Cobb CineBistro, but grander plans have been put on the back burner.

What Westfield tried to prove in the lawsuit was that Dillard’s pulling out of the mall in favor of a new store coupled with Benderson buying the Dillard’s parcel hurt Westfield’s alleged agreement in place to redevelop Dillard’s and the mall, according to court documents.

Westfield argued, according to court documents, that happened because:

  • Dillard’s didn’t provide a written OK for Southgate’s expansion
  • Dillard’s alleged claim to turn its Southgate store into a Clearance Center (outlet)
  • Dillard’s selling to rival Benderson
  • Benderson is bound by the existing operating agreement and has to work with the mall but hasn’t.
  • And, Benderson hasn’t worked with the mall to craft a new operating agreement.

Westfield also wanted to know if it was really true that if Benderson had an agreement with Nordstrom and if it really would rather put it at UTC instead of Southgate, as postured in a February 2015 Herald-Tribune column.

The Proposed Redevelopment

Here is Westifeld’s side of the story in court documents of what it planned to do with redevelopment:

  • Southgate wanted to build an additional 243,000-square-feet of space and a parking deck with up to 1,200 spaces. That parking deck could be built in one phase and expanded at another phase.
  • Add a new department store and/or more retail on the northwest corner of property (Siesta Drive wing/Dillard’s)
  • Remodel Saks (completed as CineBistro) and expand mall at southwest entrance (plaza design reported by Herald-Tribune)
  • That plan included initially expanding the mall by 183,000 square feet and adding 60,000 square feet to Dillard’s.
  • Phase I could build up to 81,000 square feet and add new commercial space on Siesta Drive on the north and Tamiami Trail to the west.
  • Westfield would have built a roundabout at its Siesta Drive entrance and made improvements to U.S. 41.

Here’s Westfield’s side of the story on what involved Dillard’s:

  • Dillard’s expansion included plans to build a second-story pedestrian bridge that would connect to the proposed second floor of Dillard’s to the parking deck
  • Southgate initiated in 2007 redevelopment talks with Dillard’s after UTC was announced. When plans for the mall were initially revealed, Dillard’s was not part of the announcement. (That much was true: it was Nordstrom’s, Neiman Marcus and Macy’s. Then the Great Recession happened.)
  • Southgate needed the OK of Macy’s and Dillard’s and other government approvals to move forward with the redevelopment
  • Southgate said it has a letter that said Dillard’s said in 2011 that it began to chat with folks at the Mall at UTC.
  • Southgate alleges that in 2012 Dillard’s would close its Southgate store when UTC opens and withheld the information for two years.
  • In April 2014, Dillard’s decided to only operate a store at UTC and withdrew consent for expansion.
  • Part of that withdrew consent included a rezoning that was needed from the City of Sarasota for the Dillard’s property because a cap of 30 percent building coverage on the site.
  • In that April 2014 letter, according to Southgate, Dillard’s proposed to operate a clearance center, which Southgate said would violate an agreement that maintained the store retain certain standards to keep Southgate a “first-class” shopping center.
  • Southgate alleged that the deal went sour where in June 2014 Dillard’s wanted an inflated price for its property and sold for a lower value to competitor Dillard’s.
  • Southgate spent $8 million for the first stage of redevelopment of the mall

“Dillard’s plans to replace its department store at the Mall with a clearance store and/or sell the store to the developer of UTC is intended to damage the Mall,” Westfield wrote in its complaint.

Dillard’s Side of the Story

Dillard’s argued in its appeal to dismiss that there was no breach of contract, no breach of good faith/fair dealing and that there can’t bdillards-logoe a finding favorable to the plaintiff if a broken promise existed and the court couldn’t hold it against Dillard’s if it changed its mind. Dillard’s contested all the remaining counts in the lawsuit as well.

Dillard’s shared in court documents that the company couldn’t OK any redevelopment agreement with Westfield Southgate unless the parties would:

  • sign off on an easement and operating agreement that incorporates a redeveloped plan and updated site plan
  • a letter of agreement approving landscaping and easements for the mall that Dillard’s said it had a sole discretion right
  • and a parking easement if needed for the proposed parking deck

An April 4, 2014, letter from Dillard’s to Westfield COO William Hecht included in the filing spelled out why Dillard’s didn’t want to be in Southgate any more:

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The letter included an attached letter of intent with an asking price of $12 million for Westfield to buy out Dillard’s space. (Benderson bought it for $10 million.)

And here’s what Dillard’s said why Southgate is wrong:

  • Dillard’s argued in a letter that in fact, the department wanted to expand and build a parking deck but Westfield was the one dragging its feet and didn’t proceed.
  • Dillard’s wrote in a filing that in its agreements with the city and Southgate about the rezone, it had language that would prevent Dillard’s from being held liable or incur any costs other than cost of construction of Dillard’s and standard maintenance.
  • Dillard’s said that it always had a write to withhold, for any or no reason, consent and can’t be held responsible for a tort claim, negligent misrepresentation or breach of contract.
  • Dillard’s argued it did not interfere with the commitments Southgate had from prospective restaurants and tenants for the expansion because documents say the expansion could be put on hold or stopped of Dillard’s withdrew consent.
  • Dillard’s and Benderson said that Westfield didn’t state a cause of action for breach of contract.
  • Additionally, Dillard’s said it wasn’t told who those tenants are and said it is unclear if those tenants dropped out.

Benderson’s Side of the Story

Benderson also argued in its appeal reasons similar to Dillard’s, including there being no proof of collusion.

The developer also wondered which is the true allegation by Westfield–it’s bound by the operating agreement or it hasn’t come to an agreement on a new operating agreement. Because Benderson hasn’t come to an agreement on a new contract, then there can’t be a breach of contract, Benderson wrote in its response. For what it’s worth, Benderson included a footnote that it hasn’t taken a position that it’s not bound by the existing agreement.

Benderson also argued that it shouldn’t be held responsible for allowing Dillard’s to operating as a clearance center during its wind-down because the developer argued no “first-class” restrictions were placed on the Dillard’s site and the property was still being used for retail.

Additionally, Benderson argued that because a 10-year-agreement expired, Dillard’s was covered in a different section of an agreement that would provide a time that the site could be vacant until redevelopment occurs:

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Benderson also added in its filing that if Dillard’s tried to withdraw its rezoning consent from the city of Sarasota, it should not have had any effect because only Southgate and the city could make changes.

What the Judge Said

The case was referred to Magistrate Deborah Bailey to determine the validity of the counts.

Bailey determined that a case could move forward on the charge that Benderson would be obligated to honor an operating agreement signed by Dillard’s for that property, but she didn’t rule on the merits of the accusation–just that it was legally sufficient to proceed.

She also determined that the count of a breach of implied covenant of good faith and fair dealing could also move forward.

The remaining counts/claims weren’t legally sufficient, Bailey wrote. That included the estoppel claim, fraudulent/negligent misrepresentation, collusion/interference and conspiracy.

If a trial would have proceeded, a lot of typically confidential business information would become public. The depositions, which weren’t recorded or entered into court, had questions asking defendants to disclose all communications about the redevelopment of Southgate, Dillard’s and construction and planning of The Mall at UTC. Imagine if all of that would have been released. Taubman filed a motion during the court wrangling objecting to the depositions because it said confidential business information and trade secrets might be revealed.

The magistrate judge also said that in discovery, Westfield would have to reveal the identities of “prominent restaurants” and “high-end specialty tenants.” That is definitely a competitive disadvantage when you have soft commitments with no lease signed.

Background on Media Coverage

I have to say I’m at fault for not finding out about this until months after I resigned from the Bradenton Herald and took my current job at Frostburg (Md.) State University. However, all of us covering retail in the Bradenton-Sarasota area failed to report on this. As of this entry, the Sarasota Herald-Tribune, Bradenton Herald, The Observer and other news outlets in the area haven’t written anything about the lawsuit.

I felt compelled enough to write about this now to absolve a guilty conscious of failing to see this. When I wrote about Benderson buying the space, I couldn’t tell intereviewing Todd Mathes that they were being sued in connection to this purchase. He didn’t give anything away. I didn’t receive a report of new lawsuits filed in Sarasota County while I worked at the Bradenton Herald and going to the court house to check new filings wasn’t something I did. However, the Clerk of the Court has an online system to check at least the filings. I don’t know why I never decided to pop in one of the four companies involved in the database.

At some point this year I really began to wonder why Dillard’s wasn’t redeveloped and why plans didn’t move forward. I found that the Clerk at some point upgraded its system so I could open court documents remotely, similar to Manatee County.

The lawsuit would explain why the mall redevelopment hasn’t completed yet coupled with a rebrand.

The Herald-Tribune reported in August 2015 that BRAVO! Cucina Italian Restaurant and other restaurants planned could “be open as early as next summer” and that the name switch to Siesta Key would happen when Cobb CineBistro opened this year.  The name switch didn’t happen, and it doesn’t look like that the restaurants will make that anticipated deadline. The Bradenton Herald’s current writer reported that Connors Steak & Seafood wouldn’t open until 2017.

Now we know why all of that kept being pushed back—a legal fight needed to be resolved.

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