A Bad Interaction

Hodel's Drug Store fights a losing battle.

It was February 1998, and as Chip Berry looked around the nearly empty Belcaro Shopping Center, his old anger came back. For four years, his landlord had been promising to fill the center with shops that would help bring business back to the old strip mall. Hodel's Drug Store, which Berry and a partner had bought ten years earlier, relied on those other stores to make Belcaro a popular shopping stop. But since 1994, only King Soopers on one end and Hodel's on the other had been constants; between them was one empty space after another.

Berry could have understood this if Denver were still facing the recession that had gripped Colorado in the late 1980s, but the city was growing again, and South Colorado Boulevard was booming with new developments and reinvigorated shopping centers. Across the street and down a block, a 109,000-square-foot Builders Square had replaced Celebrity Sports Center in November 1995; one block further south, a United Artists theater had made way for a 35,000-square-foot Barnes & Noble "superstore."

Catellus Development Corporation, which owns Belcaro, could have taken advantage of the good times, Berry thought. But instead of bringing new businesses to the center, Catellus had let its tenants leave one by one and then didn't replace them. As a result, Belcaro looked like it was crying to be torn down and replaced by another giant box store: a Home Depot or a Rite-Aid or a giant, rebuilt King Soopers. Maybe that was the idea -- about the only thing standing in Catellus's way was Hodel's Drug Store, which had an upcoming option to renew its lease through 2003.

Opened in 1958 by Merv Hodel, the independent pharmacy had quickly become a Denver landmark, as had Belcaro, which was first developed in the 1950s. After Hodel died in 1987, his wife sold the business to Berry, who had worked there since 1962, and longtime Hodel's pharmacist Frank Miyazawa; a third partner, Michael Mitchell, joined later. The three men managed to keep the store alive at a time when independent businesses of all kinds were closing because of competition from giant chains. Another Hodel's, at 3100 South Sheridan Boulevard -- this one operated by Merv's brother, Ron, from 1959 until 1990, when he sold it to longtime employee Ken Campbell -- would close in 1999, a victim of such competition.

When Berry had complained to Catellus about the shopping center's condition, the company's leasing agent, Thomas Mathews of CB Richard Ellis, offered Hodel's another location on the other side of King Soopers at a discounted rate, but Berry didn't want to move. His option to renew -- at a rate to be determined by Catellus -- was coming up that September, and he had expansion plans. (The Cheese Company, which had been in Belcaro for 31 years, also was offered a new spot on the other side of the supermarket; after a bitter disagreement with Catellus, the store moved out altogether.) In March 1998, Berry got his renewal offer: At $23 per square foot, it was a 73 percent hike over the $13.25 he'd been paying -- an impossible amount, Berry thought, and an obvious attempt to force Hodel's out.

Berry called his lawyer.

Bill Danks, a former assistant United States attorney, had known Berry for decades and had done Hodel's legal work for thirteen years. A fan of small business, Danks had seen developers move in and shut down shopping centers before, and he decided that this situation was more of the same. After five months of warnings, he and Berry filed suit against Catellus on August 3, 1998.

Their suit claimed that Catellus, a massive, publicly traded San Francisco-based company, had systematically and illegally forced its tenants out because it wanted to redevelop Belcaro or sell it. Furthermore, they charged, Catellus had failed to set a renewal rate in good faith; had kept Belcaro empty and thereby interfered with Hodel's ability to do business; and had breached the lease agreement by misrepresenting its intentions for the future.

For roughly two years, between 1994 and 1996, Catellus had been trying to find out whether King Soopers wanted to expand, Danks discovered. If it did, the company would tailor any redevelopment of the shopping center to accommodate a larger version of the supermarket. During this time, Catellus had instructed Mathews to discontinue certain leases. In July 1994, for example, Mathews wrote to Norm's Bootery, which had been in the mall nineteen years, that "CB Commercial has been authorized on behalf of the ownership entity of Belcaro to notify you that the lease renewal proposal dated June 1, 1994, is revoked. The landlord will not renew or extend your lease." In January 1995, Mathews notified Ace Hardware, which had been in the mall for 42 years, that "a lease renewal with Belcaro Ace Hardware is not in the long-term plans of the property."

Although the King Soopers lease was coming up for renewal in January 1996, the company held off on telling Catellus its plans.

So between 1996 and 1998, Catellus changed tactics, Danks alleged. It tried to convince King Soopers to buy the entire center outright, in exchange for some land the supermarket owned near Stapleton Airport. In taking over the property, King Soopers would also assume the problem of how to handle Hodel's Drug Store.

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