On Friday September 15, landlord Cadillac Fairview filed a lawsuit against Starbucks for breach of contract in the Ontario Superior Court of Justice. The lawsuit claims that Starbucks is in breach of contract by taking steps to shutter its Teavana concept locations in 10 of Cadillac Fairview’s shopping centre properties.
Starbucks announced on July 27 of this year that it would shutter its tea concept Teavana stores, which has 379 locations globally, including 56 stores in Canada. Starbucks said that it would close its Canadian locations first, all by the end of September.
Cadillac Fairview is seeking several remedies as part of its claim, including $15 million in damages for breach of contract, as well as a further $5 million in punitive damages for Starbucks’ “improper”, “in bad faith” and “high handed" conduct. In addition, Cadillac Fairview is seeking costs of the proceeding on a full indemnity basis.
A Cadillac Fairview spokesperson stated: "We can confirm that we have filed a statement of claim against Starbucks, owners of Teavana, for failure to comply with operating covenants within our lease agreements (Starbucks publicly announced their intention to close all Teavana stores and have depleted their inventories)", going on to say, "We have filed this claim as we want our tenant to honour the operating covenants in their lease agreement and if they do not, we will exercise the lawful remedies outlined in the lease to address these defaults."
In the Statement of Claim, Cadillac Fairview alleges that Starbucks’ closure of Teavana is “in direct and flagrant breach of its express lease obligations governing the stores,” going on to say that “the express terms of the store leases to which Starbucks agreed required it, at all times throughout the term of the leases, to continuously and actively operate the stores, fully fixtured, stocked and staffed”.
The Statement of Claim alleges that in the Teavana leases, Starbucks agreed that it "would at no time during the term of the leases close any of the stores”. The Statement of Claim, filed by law firm Torys LLP, notes that Starbucks had previously announced that it was investing in the growth of the Teavana brand, and that it was a “well recognized, super-premium global brand” and that tea had become a core focus for Starbucks, which is particularly known for its coffee beverages.
The lawsuit further states that prior to Starbucks’ July 27 announcement, Cadillac Fairview was given no advance warning of the Teavana store closures, nor did Starbucks seek consent or agreement for the closures. Post-announcement, Cadillac Fairview even warned Starbucks of its duty to keep Teavana’s stores open, says the Statement of Claim.
Starbucks Canada acquired Teavana Canada in January of 2013, and merged Teavana into Starbucks in March of 2016. Starbucks assumed the rights and obligations of the Teavana leases, including those at 10 Cadillac Fairview properties — five are in Ontario (Toronto: CF Toronto Eaton Centre, CF Shops at Don Mills, CF Markville, CF Fairview Mall, and Kitchener: CF Fairview Park), two are in Calgary (CF Chinook Centre and CF Market Mall), one is in suburban Vancouver (CF Richmond Centre), one is in Winnipeg (CF Polo Park) and one is in suburban Montreal (CF Carrefour Laval).
Of these 10 Teavana locations, leases expire between December 31, 2019 to September 30, 2024. Starbucks is now in the process of liquidating its Teavana locations in Canada, despite warnings from Cadillac Fairview of its continued lease obligations.
The lawsuit speaks to the importance of having a diverse tenant mix in shopping centres, and how losing Teavana will lead to negative consequences. “Retail shopping centres… depend for their success on having a certain synergistic mix of retail tenants operating in them, and on the tenants complying with their obligations to properly operate their stores throughout the term of their leases. If a tenant fails to do so, it has negative consequences for the shopping centre owners/operators and other tenants, as well as the public who shop at the centres,” states the Statement of Claim.
The lawsuit points out that there is evidence that Starbucks plans to continue retailing Teavana tea in its Starbucks-branded locations and other sales channels. The lawsuit also alleges that Starbucks hid its intention to shutter Teavana from Cadillac Fairview, which found out about the news through a public media announcement.
Starbucks has 20 days from the date of Cadillac Fairview’s Statement of Claim to file a Statement of Defence, and it will be interesting to see on what grounds Starbucks might claim that it has justification to terminate its Teavana leases in Canada. Cadillac Fairview’s argument is extremely convincing, clearly setting out aspects of Starbucks’ alleged breach of contract.
Such a lawsuit also isn’t unprecedented — in the United States, landlord Simon Property Group filed a lawsuit against Starbucks on August 21 of this year. Simon’s malls house 78 Teavana locations and in the Simon lawsuit, the landlord states that Starbucks “put its stock price above its contractual obligations, the viability of Simon and its shopping centres, other retailers, and consumers who count on the Teavana stores”. Simon is seeking damages, as well as an injunction, to stop Starbucks from closing its Teavana stores early.