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Petco Animal Supplies Stores, Inc. v. Five Fifty Two Corporation

United States District Court, D. Nebraska

January 6, 2016

THE FIVE FIFTY TWO CORPORATION, a Nebraska corporation; Defendant.


Laurie Smith Camp Chief United States District Judge

This matter is before the Court on the Motion for Summary Judgment (Filing No. 83) filed by Plaintiff Petco Animal Supplies Stores, Inc. (“Petco”). Also before the Court is the Motion in Limine (Filing No. 76), Motion for Summary Judgment (Filing No. 84), Motion to Strike (Filing No. 98), and Motion in Limine (Filing No. 120) filed by Defendant The Five Fifty Two Corporation (“The 552”).


The following facts are those stated in the parties’ briefs and supported by pinpoint citations to evidence in the record, and admitted or not properly resisted by the opposing party as required by NECivR 56.1[1] and Federal Rule of Civil Procedure 56.

The 552 is the owner of a commercial building, real property, and improvements commonly known as 7110 Dodge Street, Omaha, Nebraska (the “Leased Premises”). On or about August 21, 1997, Petco and The 552 entered into a commercial lease (the “Lease”), with The 552 as landlord and Petco as tenant of the Leased Premises. Under the terms of the Lease, Petco was granted three separate five-year renewal options, the first of which Petco exercised on or about September 25, 2012; thus, extending the term of the Lease to January 31, 2018. The 552 alleges that Petco defaulted under the terms of the Lease by failing to comply with maintenance and repair obligations, and failing to timely cure those defaults after receiving notice.

Petco seeks a declaratory judgment that it is not in default of the Lease. (Filing No. 1 (“Complaint”).) The 552 filed a counterclaim seeking a declaratory judgment confirming Petco’s default and upholding The 552’s termination of the Lease. (Filing No. 11 (“Answer and Counterclaim”).) On November 17, 2014, the Court preliminarily enjoined The 552 from instituting eviction proceedings against Petco and from otherwise attempting to regain possession of the Leased Premises during the pendency of this case. (Filing No. 32.) Pursuant to the Order, Petco was required to post a $250, 000 bond with the Court. (Filing No. 32.)

I. Maintenance Obligations and Alleged Default

The Lease required Petco to “maintain and replace, as necessary” the Leased Premises and its systems, in “good condition and repair.” (Filing No. 27-4 at ECF 10, ¶ 13(a).) Paragraph 24 of the Lease provided the conditions under which a “Tenant Event of Default” (“TED”) justifying termination of the Lease could occur, stating that a TED could occur when Petco defaulted in the performance of any covenant under the Lease (other than the payment of rent), and failed to cure or commence curing its default within 30 days of notice of the default. (Filing No. 27-4 at ECF 18, ¶ 24(b).) Petco took possession of the Leased Premises in 1997 in an “as is” condition. Petco presently remains in possession of the Leased Premises. (Filing No. 27-4 at ECF 8, ¶ 6; Filing No. 32.)

Prior to January 2014, The 552 notified Petco of an alleged failure to comply with maintenance obligations under the Lease. On June 9, 2011, counsel for The 552 sent a notice to Petco (the “2011 Notice”) citing several examples of deferred maintenance at the Leased Premises, including ceiling and roof repairs, and said the examples were not all-inclusive. (Filing No. 28-2.) The 2011 Notice informed Petco that it would be in default of the Lease if the defects were not cured “within 30 days of the date of this Notice or as otherwise provided in the Lease.” (Filing No. 28-2.) On July 16, 2012, counsel for The 552 sent another notice to Petco (the “2012 Notice”) citing more examples of deferred maintenance at the Leased Premises, and telling Petco the examples were not all-inclusive. (Filing No. 28-6.) Both the 2011 and 2012 Notices said Petco had a legal obligation to “continue to maintain the [Leased] Premises as and when necessary, ” and to “immediately inspect the [Leased] Premises for any additional maintenance or repairs that need to be completed.” (Filing Nos. 28-2 and 28-6.) The 2011 and 2012 Notices also informed Petco that its “obligation to maintain and repair the [Leased] Premises is a continuing one” and explained that “if [The 552] observes any continued or future signs of deferred maintenance or repair, such signs will be evidence that [Petco] has failed to cure its breach of the obligation to maintain the [Leased] Premises within 30 days of this Notice, ” and that Petco could be considered in default without further notice. (Filing Nos. 28-2 and 28-6.) On April 11, 2013, counsel for The 552 sent a notice of default to Petco (the “2013 Notice”) concerning Petco’s failure to pay real estate taxes due for the Leased Premises and restated to Petco that it had a contractual obligation to cure the default within 10 days. (Filing No. 28-7.)

In the fall of 2013, CNA Financial Corporation (“CNA”) issued real property casualty and general liability insurance coverage for the Leased Premises to be effective on January 1, 2014. As part of its underwriting process, CNA engaged a third-party inspection service, Alexander & Schmidt, which in turn hired William Zersen (“Zersen”), to inspect and evaluate the condition of the Leased Premises. As part of his inspection, Zersen completed a report describing the general condition and specific problem areas of the Leased Premises (the “Zersen Report”) noting that the “overall maintenance and building condition was fair to poor.” (Filing No. 90-8 at ECF 33.) He found that “[t]here is a substantial crack in the exterior load bearing wall, ” and “[c]eiling stains on drop tile ceilings in various locations [which] may be due to roof leaks though no active leaks were seen at the time of the survey.” (Filing No. 90-8 at ECF 33.) “Poor” is the lowest rating that Zersen gave to any building, with the other possible ratings being fair, above average, and good, in order of increasing quality. (Zersen Deposition, Filing No. 90-8, 78:25-79:21.) Zersen also checked the box indicating “poor building condition, ” primarily on the basis of “a crack of [a] magnitude” not often seen “in the exterior wall of a building” and the possible roof leaks. (Zersen Deposition 34:22- 35:9; 78:8-19; Filing No. 90-8 at ECF 33.) Zersen also noted that maintenance of the Leased Premises was not being performed on a preventive basis and recommended that such a program be put in place. (Filing No. 90-8 at ECF 48.)

Based on the maintenance issues in the Zersen Report, counsel for The 552 sent a letter to Petco dated January 29, 2014, informing Petco that it continued to be in default of its maintenance obligations under the Lease (the “January 2014 Notice”). (Filing No. 28-9.) The January 2014 Notice identified Petco’s maintenance defaults specifically, stating that Petco failed to repair a crack in the outside wall, the water-damaged ceiling tiles, the damaged floor tiles, and the possible roof leaks. (Filing No. 28-9 at ECF 1.) The 552 requested that repairs be made immediately, and that Petco have the roof inspected and repaired, if needed. (Filing No. 28-9 at ECF 1-2.) The January 2014 Notice stated that Petco would be in default of the Lease if it failed to cure the defects identified. (Filing No. 28-9 at ECF 2.) It also stated that the “list is not intended to be all-inclusive and [Petco] should immediately inspect the [Leased] Premises for any additional maintenance or repairs that need to be completed and report them to [The 552].” (Filing No. 28-9 at ECF 2.) It also directed Petco to inspect the electrical system. (Filing No. 28-9 at ECF 2.) The Notice stated that “if [The 552] observes any continued or future signs of deferred maintenance or repair, such signs will be evidence that [Petco] has failed to cure its breach of the obligation to maintain the [Leased] Premises within 30 days of this Notice, and [Petco] will be in default of the Lease without any further notice from [The 552].” (Filing No. 28-9 at ECF 2.)

On April 30, 2014, because The 552 had received no response from Petco, The 552 sent a letter to Petco entitled Notice of Default and Termination of Lease (the “Termination Notice”). The Termination Notice stated that Petco defaulted on its maintenance obligations, and The 552 elected to terminate the Lease. (Filing No. 27-1.) The Termination Notice provided Petco until June 15, 2014, to vacate the Leased Premises. (Filing No. 27-1.) The Termination Notice also stated that Petco knew of the issues specifically listed in the Notice of Default, and provided examples of previous maintenance issues. The Termination Notice stated that the default and termination of the Lease were based on the failure to cure after the January 2014 Notice, as well as previous maintenance issues.

II. Response to 2014 Notices

Mark Warren (“Warren”) was employed as Petco’s Director of Maintenance, Waste, and Recycling for seven years and oversaw repair and maintenance functions for 1, 400 Petco stores. Warren’s office was located in Texas, and he did not personally go the Leased Premises until July of 2014. Elizabeth Lindahl (“Lindahl”) was a District Manager for Petco. Lindahl managed eighteen Petco stores in Nebraska, Iowa, South Dakota, and Illinois, including the store at issue in this case. Lindahl stated that she did not have any responsibility with respect to the negotiation of or compliance with commercial leases or any day-to-day maintenance obligations at the Petco locations under her supervision. Tammy Fitzgerald (“Fitzgerald”) was the General Manager of the Petco store located on the Leased Premises during the relevant time and reported directly to Lindahl. Fitzgerald was responsible for the daily operations of the store.

After receiving a legal notice from a local store manager, Petco’s property management division was responsible for lease interpretation and compliance. Petco’s maintenance department was tasked with execution of maintenance or repair work in response to such notices when it was directed to do so by Petco’s property management division. Fitzgerald and any other manager could report maintenance concerns by phone or computer. Generally, maintenance requests and concerns were submitted through a computer system called Service Channel and Petco’s maintenance department would respond to the request. Fitzgerald stated that she was not aware of the crack in the north wall, but that she looked at it after receiving the January 2014 Notice. She did not look for other cracks or notice any other cracks. Fitzgerald faxed the January 2014 Notice to Lindahl and assumed Lindahl would take care of everything. On January 31, 2014, Fitzgerald made a computer entry through Service Channel regarding some of the issues identified in the January 2014 Notice, and stated that the repairs needed to be completed “asap”. (Filing No. 21-2 at ECF 7; see also Filing No. 90-1, Fitzgerald Dep. 88:1-89:1, 108:19-109:9, 112:17-113:10; Filing No. 90-1 at ECF 101.) This entry became Work Order 44540881.

Work Order 44540881 was received by Petco contractor PVC Facility Management, Inc. (“PVC”) on or about January 31, 2014; PVC contacted Fitzgerald the same day to discuss the requested work and to schedule an on-site visit to commence work. On or about February 4, 2014, PVC assessed the work necessary to respond to Work Order 44540881 at the Leased Premises. On that same day, ceiling tiles were replaced and plans were made for PVC to return. PVC returned to the Leased Premises on February 12, 2014, as part of its response to Work Order 44540881 to investigate additional necessary work. At that time, PVC observed a crack in the wall and confirmed there were no floor tile issues.[2] (Matt Aff., Filing No. 87-5 ¶ 11.) Based on this visit PVC requested repair bids from three different masons to identify a solution for the crack. On or about February 25, 2014, PVC submitted a proposal to Petco to repair the crack, which proposal was approved by Petco on February 27, 2014. The solution PVC identified for the crack was to seal it using a product call Sonolastic NP 2. Due to the chemical properties of the product PVC believed it was necessary to wait until March 17, 2014, to ensure the masonry was in a suitable condition for a proper seal.

On April 10, 2014, a Petco assistant manager resubmitted to PVC the same computer entry previously submitted by Fitzgerald on January 31, 2014. Petco’s first contact with The 552 regarding the maintenance issues identified in the January 2014 Notice was an email sent on April 11, 2014, in which Petco stated it had fixed several of the maintenance issues. PVC responded to the re-sent computer entry and requested contact information for The 552 to discuss the damaged foundation; but, on April 17, 2014, Petco ordered all work to be stopped, noting that Petco had hired another contractor.

Fitzgerald also entered Work Order No. 46571150 on April 10, 2014, indicating that the roof needed to be checked for a possible leak. Petco’s roofing contractor, Simon Roofing and Sheet Metal (“Simon”), received Work Order No. 46571150 on or about April 11, 2014, via Service Channel. Simon responded to Work Order No. 46571150 at the Leased Premises on April 18, 2014. At that time temporary repairs were made to a disconnected pipe and open curb flashing. On or about May 8, 2014, Simon quoted Petco a price for permanent repairs needed to address the issues identified on April 18, 2014. Petco approved the proposed permanent repairs by issuing a purchase order on or about May 13, 2014. Simon came to the Leased Premises to complete the quoted permanent repairs on May 21, 2014.

Following discussions between the parties after Petco’s receipt of the Notice of Termination, Petco learned that The 552 was not satisfied with Petco’s cure of the crack in the exterior wall, although The 552 did not serve Petco with an additional notice to cure. (Badley Dep., Filing No. 87-1 at ECF 77:2-78:5.) Petco contacted a general contractor-W.D.S. Construction (“W.D.S.”)-on May 23, 2014. Through W.D.S., Petco engaged Excel Engineering, Inc. (“Excel”) to complete a full site assessment of the Leased Premises on May 30, 2014. Excel’s qualified structural engineers issued a detailed report on June 2, 2014 (the “Excel Report”). The Excel Report referenced floor tile distress, identified four cracks including “Crack A” which extended from the exterior to the interior of a wall, and noted the presence of other cracks in the foundation wall in the basement. Petco prepared and submitted to The 552 a “scope of work” on July 24, 2014, to address structural issues, and advised of its intention to proceed with repairs. (Filing No. 87-2 at ECF 3.) On July 25, 2014, The 552 asked Petco to refrain from beginning work until The 552 could complete its review of Excel’s engineering reports and consult its own engineers. (Filling No. 87-2 at ECF 4-5.) Petco did not receive permission to complete any structural repairs. The 552 argues that it did not give permission because Petco should have moved forward on the work regardless; The 552 had not received architectural plans; and the Notice of Termination already had been given.

Warren visited the Leased Premises in July 2014 and noted that “[t]here was a number of things that needed to be addressed” and that the building “was not up to our brand standard.” In light of his observation, Warren drafted a list of remodeling and cosmetic items he thought should be addressed. Petco sent Warren’s list to W.D.S. Construction, Inc. (“W.D.S.”) on July 18, 2014. The appearance and condition of the Leased Premises were the same when W.D.S. and Excel visited in late July 2014 as when Excel conducted its full site assessment and took pictures of the Leased Premises on May 30, 2014. The focus of the July 2014 visit to the Leased Premises, and the work eventually performed based on the visit, was cosmetic, such as infilling of a truck dock and construction of a new trash enclosure.


“Summary judgment is appropriate when, construing the evidence most favorably to the nonmoving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Crozier v. Wint, 736 F.3d 1134, 1136 (8th Cir. 2013) (citing Fed.R.Civ.P. 56(c)). “Summary Judgment is not disfavored and is designed for every action.” Briscoe v. Cnty. of St. Louis, 690 F.3d 1004, 1011 n.2 (8th Cir. 2012) (quoting Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) cert. denied, 132 S.Ct. 513 (2011)) (internal quotation marks omitted). In reviewing a motion for summary judgment, the Court will view “all facts and mak[e] all reasonable inferences favorable to the nonmovant.” Gen. Mills Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th Cir. 2013). “[W]here the nonmoving party will bear the burden of proof at trial on a dispositive issue . . . Rule 56(e) permits a proper summary judgment motion to be opposed by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The moving party need not negate the nonmoving party’s claims by showing “the absence of a genuine issue of material fact.” Id. at 325. Instead, “the burden on the moving party may be discharged by ‘showing’ . . . that there is an absence of evidence to support the nonmoving party’s case.” Id.

In response to the movant’s showing, the nonmoving party’s burden is to produce specific facts demonstrating “‘a genuine issue of material fact’ such that [its] claim should proceed to trial.” Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 422 (8th Cir. 2009) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). The nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts, and must come forward with specific facts showing that there is a genuine issue for trial.” Briscoe, 690 F.3d at 1011 (quoting Torgerson, 643 F.3d at 1042) (internal quotation marks omitted). “‘[T]he mere existence of some alleged factual dispute between the parties’” will not defeat an otherwise properly supported motion for summary judgment. Quinn v. St. Louis Cty., 653 F.3d 745, 751 (8th Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)).

In other words, in deciding “a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts.” Guimaraes v. SuperValu, Inc., 674 F.3d 962, 972 (8th Cir. 2012) (quoting Torgerson, 643 F.3d at 1042) (internal quotation marks omitted). Otherwise, where the Court finds that “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, ” there is no “genuine issue for trial” and summary ...

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