A Bad Interaction
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.
During the four years that Belcaro was in limbo, even as offers poured in from businesses anxious to lease space there -- Radio Shack and Bruegger's Fresh Bagel Bakery in 1995, followed by Liks Ice Cream, Jamaica Juice, a Maytag repair shop, Play It Again Sports, Big Leroy's Total Golf and Hollywood Video, among many others -- Catellus did nothing to fill the empty spots. "We currently have four spaces available for lease," Mathews wrote in a May 1995 report to Catellus. "As we discussed per landlord's direction, we are holding this space off the market pending the outcome of the King Soopers expansion."
"During this extremely frustrating period, I and my two partners considered moving from the Center," Berry wrote in an affidavit contained in the hefty court file. "It was four very difficult years, as we saw our business being destroyed by the decline of the Center and the actions of the owner."
Catellus's intentional destruction of Hodel's was an elegant theory laid out by an articulate lawyer, and Danks assured Berry that he would get it in front of a jury. But the theory lacked a shred of proof, according to Denver District Court Judge R. Michael Mullins, who summarily rejected nearly the entire case on July 5 of this year. "Hodel's has presented no evidence, only speculation concerning secret plans, that Catellus purposefully made no effort to rent spaces at the shopping center," he wrote in his ruling.
Joe Silver, of the Denver law firm of Silver and DeBoskey, which represents Catellus, doesn't deny that his client was negotiating with King Soopers -- which ultimately kept the same space it already occupied -- but he rejects Danks's claim that the real estate company was trying to force Hodel's and other stores to move. "I don't believe that anything Catellus did was wrongful, even keeping the space off the market -- there are documents you can look at in the court file that can dispute or support that -- but there was no such plan," he says. "Danks took a hodgepodge of different circumstances and tried to fit them together into a conspiracy theory. He hoped someone would believe him."
During the two years that Danks and Silver traded motions, Hodel's continued to pay rent to Catellus, but only at the $13.25 per square foot rate. Even so, by the time Catellus finally resumed the leasing out of Belcaro shortly after Hodel's sued, Berry's business had suffered as a result of all the empty spaces nearby. So when the judge ruled in favor of Catellus, Hodel's was left with a lot of unpaid bills.
A trial to determine how much Hodel's owed Catellus (and to clear up several other loose ends) was set for November 6, but the drugstore filed for Chapter 11 bankruptcy the week before, indefinitely postponing the trial. It will now be up to the bankruptcy court to determine what Hodel's rent should be and to whom it should be paid.
Berry himself won't say much about his store or the lawsuit. "It's hard for me to talk about it because I get upset about it," he says. And while he plans to reorganize and keep the drugstore going, he knows he won't be doing business in Belcaro after 2003: Catellus won't be offering Hodel's a lease extension.
"Throughout this there has never been any ill will that Catellus has had toward Hodel's," Silver maintains. "But it's been unfortunate to witness what plaintiff was doing to itself through counsel. They chose to wage a war over two years in which they sued us claiming bad faith and breaches. All claims were dismissed summarily by the court, and their attempt to have the court reconsider its rulings were also denied. A combination of bad business judgment and bad legal advice prompted a situation that could have been avoided."
Danks acknowledges that he may be partially to blame for Berry's situation.
"Hodel's is thriving, but this suit is driving them under," he says. "As the attorney for Hodel's, I failed in my mission to take it to trial. I didn't do my job. I could have done a better job for them. I feel sick about this case."
But he still believes in the validity of his argument. "In this case, the landlord didn't just come in and lock the door and board it up," Danks says. "They took a lot of other steps which I think the jury would have decided were attempts to force Hodel's and a number of other tenants out. We would liked to have had a trial on that issue. We thought we had a good chance."
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