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GLS DEV. v. WAL-MART STORES

May 29, 1998

GLS DEVELOPMENT, INC., Plaintiff,
v.
WAL-MART STORES, INC. and DiMUCCI DEVELOPMENT CORPORATION, Defendants.



The opinion of the court was delivered by: SHADUR

FINDINGS OF FACT AND CONCLUSIONS OF LAW

 This Court has previously issued two substantive opinions in this action: the May 31, 1996 unpublished memorandum opinion and order ("Opinion I," 1996 WL 296594 *fn1" ) that denied the Fed. R. Civ. P. ("Rule") 56 motion for summary judgment that had been advanced by defendant DiMucci Development Corp. ("DiMucci") against plaintiff GLS Development, Inc. ("GLS"), and the November 7, 1996 published opinion ("Opinion II," 944 F. Supp. 1384 *fn2" ) that granted in part and denied in part the Rule 56 motion that had been brought by defendant Wal-Mart Stores, Inc. ("Wal-Mart") against GLS. What then remained for disposition and formed the subject of a five-day bench trial in November 1997 are four claims: GLS' breach of contract claim for damages against Wal-Mart, GLS' breach of contract claim for damages against DiMucci, Wal-Mart's third-party claim against DiMucci and DiMucci's counterclaim against GLS. After much too long a post-trial period of delay, earlier this month the parties finally completed their respective submissions, comprising their earlier-filed proposed findings of fact and conclusions of law and their recent responses to the initial submissions by their adversaries. *fn3"

 What follows are this Court's findings of fact ("Findings") and conclusions of law ("Conclusions") issued in accordance with Rule 52(a). To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings. In both of those respects, see Miller v. Fenton, 474 U.S. 104, 113-14, 88 L. Ed. 2d 405, 106 S. Ct. 445 (1985).

 Findings of Fact

 1. This action stems from the checkered history of one aspect of the ultimately successful development of a parcel of commercial real estate located at Cicero Avenue and 26th Street in Cicero, Illinois (the "Property"). In 1992 William Pacella ("Pacella") was one of the partners in a partnership that held the beneficial interest in the land trust that owned the Property. At that time the Property was improved with a building (originally a store for the Wholesale Club) that was then under lease to Wal-Mart (a Delaware corporation with its principal place of business in Arkansas) for its operation of a Sam's Club store (Tr. 277).

 2. Accordingly to Richard Filler ("Filler"), the former Director of Leasing for DiMucci (an Illinois corporation with its principal place of business in Illinois), DiMucci had originally become involved with the development of properties in that area after it had been approached by the Town of Cicero ("Cicero") to render advice as to the Property's development potential (Tr. 27). Although Filler said that the parcel was smaller than DiMucci was accustomed to handling, after reviewing the availability of the surrounding parcels DiMucci agreed to do the development and sought a redevelopment agreement with Cicero (Tr. 28).

 3. DiMucci retained as its real estate broker Eagle Real Estate ("Eagle") (Tr. 236), a firm with which Filler had previously worked on other deals (Tr. 29). Filler knew that Eagle had a good relationship with Wal-Mart (id.). Within a week or two after looking at the project, Filler asked Eagle's Michael Blonstein ("Blonstein") to see if Wal-Mart would be interested in relocating its Sam's Club to a parcel south of 29th Street (Tr. 29-31).

 4. Blonstein then reported back to Filler that Wal-Mart would not be interested in moving. Blonstein told Filler that Wal-Mart was instead interested in building a new Sam's Club and Wal-Mart store on the Property, where the existing Sam's Club was located (Tr. 31). Further, in keeping with its normal practice, Wal-Mart planned to acquire and then self-develop the Property (Tr. 237, 479). Eagle had no written or oral brokerage agreement with Wal-Mart: Instead Wal-Mart told Eagle to reach an agreement with the seller to pay Eagle's commission (Tr. 234-35).

 5. Wal-Mart directed Eagle President George Erwood ("Erwood") to talk with Pacella and get the Property under contract. Originally Erwood dealt with Pat Peery ("Peery") and John Ferrick at Wal-Mart, but all of his later dealings--and the relevant dealings of everyone else involved in the transaction at issue--were with Peery's successor Kim Black ("Black," the name that will be used throughout these Findings, though she is now Kim Lane as a result of her marriage)(Tr. 234-35).

 6. On November 5, 1992 Wal-Mart signed an Option To Purchase and Purchase Agreement ("Option Agreement," P.Ex. 8), under which Wal-Mart had three successive 90-day options to purchase the Property for $ 12 million. To keep the options in effect, Wal-Mart paid $ 250,000 into escrow, to be withdrawn by Pacella in stated increments at the beginning of each option period (Tr. 174).

 7. It was originally contemplated that Wal-Mart would buy the four parcels adjoining the Property from DiMucci, which had an option on them, then build a new Sam's Club on the adjacent property, demolish the existing building on the Property and replace it with a new Wal-Mart store, then sell off the excess land to Menard's (Tr. 238, P.Ex. 16). In late 1992 representatives of DiMucci started negotiations with Cicero regarding the redevelopment of DiMucci's parcels and the Property (Tr. 31, 277).

 8. As a result of the negotiations to that point, early in 1993 *fn4" Wal-Mart and Cicero arrived at terms for a redevelopment agreement for a Wal-Mart and Sam's Club, and such a document was prepared for execution by Wal-Mart and Cicero (P.Ex. 12). On January 29 Cicero's attorney Dennis Both ("Both") sent a letter to Wal-Mart to welcome it to Cicero (Tr. 279, P.Ex. 24). And on February 2, with the first 90-day option period expiring, Wal-Mart extended its option on the Property for another 90 days (Tr. 175-76, P.Ex. 15).

 9. Somewhat later (around March) Black assumed responsibility for the project within Wal-Mart. At that time she was a real estate manager for the geographic area that included Illinois (Tr. 592). On March 29 the Wal-Mart Real Estate Committee met and decided not to build a Wal-Mart store on the Property site. Instead Wal-Mart directed Eagle to find a developer to build a new Sam's Club on the site and to lease it back to Wal-Mart (P.Ex. 19, Tr. 237).

 10. Because DiMucci was already working in the area, Erwood communicated with DiMucci about becoming the developer of the Property (Tr. 238-39). In addition, in an effort to get a second store for the site, on March 31 Eagle sent information about the development to Home Depot, a company with which Eagle had been working on store site selection (P.Ex. 20, Tr. 240).

 11. During that same time frame or shortly thereafter (around April 26), Both had concluded that Wal-Mart did not intend to proceed with the redevelopment agreement that had been negotiated but not executed. Both immediately sent a letter to Blonstein, expressing his opinion that Wal-Mart had not dealt in good faith and telling Blonstein to advise Wal-Mart not to "shop" the agreement. Instead he said that any persons interested in the site would need to negotiate directly with Cicero (P.Ex. 21).

 12. Both sent that letter because Cicero had negotiated the agreement on the basis of Wal-Mart's strength, and Both did not want anyone to think that another retailer could just step into Wal-Mart's shoes (Tr. 280-82). Wal-Mart is one of the largest retailers in the United States, with hundreds of stores nationwide and annual revenues of several billion dollars (Tr. 590-91).

 13. When Both was then advised that DiMucci would be the developer of the Property, he proceeded to negotiate a new redevelopment agreement for the Property with DiMucci (Tr. 284-85). And on May 4, with the second 90-day option period expiring, Wal-Mart extended its option for the final 90-day period to expire on August 2 (Tr. 176, P.Ex. 24).

 14. On May 27 Filler wrote a letter to Blonstein setting forth DiMucci's proposal to Wal-Mart for a build-to-suit Sam's Club store on the Property. Filler proposed a 25-year lease, with rentals starting at $ 6.95 per square foot and increasing every five years until they reached $ 8.95 in the 21st to 25th years (Tr. 34-35, P.Ex. 27). Within a week after submitting that proposal, Filler spoke with Blonstein about it. Blonstein told Filler that Wal-Mart felt the rents were too high (Tr. 38).

 15. Indeed, on June 15 Black sent a fax to Erwood. Attached to the cover page was a copy of the DiMucci proposal, on which Black had written a note to Erwood that Wal-Mart needed to get the rent into the $ 6.00-$ 6.50 range, with no increases (P.Ex. 27). On the cover page Black had written, "Discuss deal and rent with Pat [Peery]. May not want to pursue deal due to Pace acquisition in Bedford Park" (P.Ex. 28). Black said that reference was to Wal-Mart's recent acquisition of a company called Pace, which had a store in nearby Bedford Park (Tr. 596).

 16. In that same month, after three months of dealing with DiMucci, Black had concluded that negotiations were at an impasse. By that time she had become concerned about getting the deal done before the Option Agreement expired, which would cause Wal-Mart to lose the $ 250,000 that it had paid for the option (Tr. 594-96). Accordingly Erwood was told that Wal-Mart couldn't make an acceptable deal with DiMucci and was directed to find another developer (Tr. 239). Blonstein testified that he obtained Sal DiMucci's permission in that respect and that Sal agreed to sell DiMucci's position to another developer (Tr. 480, 484).

 17. On June 23 Erwood telephoned Gary Schwab ("Schwab") of GLS (a Colorado corporation with its principal place of business in Colorado), another real estate developer known to Erwood (Tr. 317, P.Ex. 35). GLS had previously developed and leased several Wal-Mart stores (Tr. 316). Erwood asked Schwab whether GLS would be interested in development of the Property for a Sam's Club. Erwood gave Schwab information as to the project, including its location, size and acreage, and said that an existing 500,000 square foot building would also have to be demolished. Erwood further said that the ground cost was $ 12 million but that Cicero would be providing tax increment financing ("TIF") and had done a Redevelopment Agreement with Wal-Mart. Erwood explained that GLS would be working under a short time frame and told Schwab to call Black directly (Tr. 317-19). *fn5"

 18. Either that day or the next day, Schwab called and spoke to Black. They discussed what documents Wal-Mart had, including the Option Agreement and the Redevelopment Agreement with Cicero (Tr. 320-21). Schwab requested, and promptly received and reviewed, copies of the Option Agreement, the Redevelopment Agreement, the site plan and a pro forma set of numbers from an engineering firm giving a breakdown of costs and expenses intended to show the viability of the project (Tr. 319-20). Depicted on the site plan were a Sam's Club, a Wal-Mart and a Menard's, which in combination looked as though they would not fit on the existing acreage but would require additional land to the south. Schwab was told by Erwood or Black that before it changed its mind, Wal-Mart had planned to self-develop the Sam's Club and Wal-Mart, while it would sell the other ground to Menard's (Tr. 321).

 19. During the initial discussions, no one told Schwab about DiMucci or about any situation involving another possible developer (Tr. 322). Further, Schwab was told that the Redevelopment Agreement was done (Tr. 324).

 20. Schwab found the project attractive to GLS because the creditworthiness of Wal-Mart and Home Depot made it fairly risk-free, while the TIF money would allow Wal-Mart to get a favorable lease rate and GLS to get a higher-than-normal return. Schwab valued the project at $ 25 million, with a profit to GLS of between $ 4 and $ 5 million (Tr. 334-35). Because Schwab had been told that the Redevelopment Agreement was already done, he also believed that it would be a simple matter to get it changed over from Wal-Mart's name to that of GLS (Tr. 324). Nevertheless Schwab knew that the project would have to be fast-tracked, with Wal-Mart needing to exercise its option on August 2 and with GLS then needing to close with Pacella within 30 days (by September 2)(id.). Because GLS did not have enough people to handle this new expedited project as well as the projects on which GLS had previously been working, GLS had to drop its interest in those other projects, which Schwab valued at $ 10 million (Tr. 329-33).

 21. Schwab knew that the single most important thing for GLS to do was to get its numbers in line, put together a final pro forma and send it to Black so that she could take it to Wal-Mart's Executive Committee (Tr. 322-24). To do the pro forma, Schwab had to pull together all the numbers that Wal-Mart had generated and evaluate them, rework them and figure out from his knowledge and background whether he trusted the numbers (Tr. 322-23). In contrast to the "hard numbers" supplied by the engineer, Schwab said that the "soft numbers" were something that only he as developer could put in. Those included such things as the amount of the loan, the interest rates and the architect's cost (Tr. 323).

 22. Schwab first became aware of DiMucci when he noticed a figure for DiMucci in the "soft costs" that GLS was being given by Erwood (Tr. 323). When Schwab asked Erwood what the DiMucci figure was for, Erwood told him that DiMucci had done some previous work on the project and that the anticipated payment represented compensation for DiMucci's time and effort. Erwood also told Schwab that because DiMucci had done other work for Cicero and knew Cicero officials, the money was to keep DiMucci happy and prevent any trouble (Tr. 326-27).

 23. During the course of GLS' efforts as the proposed developer, the amount of the DiMucci payment figure kept changing, at one time being $ 200,000, then being $ 400,000 (Tr. 326). Ultimately Blonstein told Schwab that GLS would have to pay DiMucci $ 500,000 in order for GLS to do the deal (Tr. 481), and the proposals then prepared by Schwab and GLS reflected that (Tr. 481).

 24. By July 21 GLS had sent Wal-Mart a letter proposing the basic terms of a deal. GLS offered to acquire Wal-Mart's rights to the Option Agreement, exercise the option by August 2 and close on the purchase by September 2 (Tr. 327, P.Ex. 34). By its terms the GLS offer was contingent upon the accomplishment of several conditions by the latter date: (a) a lease containing the stated terms had to be executed between GLS and Wal-Mart; (b) Home Depot had to execute a lease acceptable to GLS; (c) a TIF agreement had to be executed between Cicero and GLS, providing for the sale of bonds and distribution of the proceeds to GLS within 90 days of closing; and (d) GLS had to confirm that the site development cost estimates prepared by the engineer were sufficient to do the work (P.Ex. 34). According to Black the GLS proposal included a pro forma dated July 20 that listed as one of the costs of the Wal-Mart project alone a $ 250,000 payment by GLS to DiMucci for predevelopment consulting fees (Tr. 630-31, D.Ex. 34-A).

 25. On July 28 GLS sent a letter to Home Depot establishing the economics for doing a lease with Home Depot (Tr. 328, P.Ex. 38). That proposal included a pro forma that listed as one of the costs another $ 250,000 payment to DiMucci. Schwab said that no one from Home Depot had told him to do this (Tr. 373). Blonstein testified that he spoke to Home Depot's representative Mike Folio ("Folio") about the matter (Tr. 482).

 26. To reflect GLS' total projected development (encompassing both the proposed Sam's Club store for Wal-Mart and the proposed Home Depot store), Schwab testified that GLS provided Wal-Mart with an overall pro forma that accordingly listed a $ 500,000 total payment from GLS to DiMucci (Tr. 329). Black denied that she had ever seen a copy of any such pro forma (Tr. 631), as to which Wal-Mart's counsel emphasizes that the only version in evidence carries a notation that it was "updated July 29, 1993" (P.Ex. 41). But Black's denial was not credible, being impeached by her prior sworn deposition testimony in which she expressly admitted having received a pro forma from GLS that provided for a $ 500,000 payment to DiMucci (Tr. 718). And consistently with that prior testimony and at odds with her denial at trial, Black also admitted that "sometime in August" Schwab had told her that GLS was going to pay DiMucci $ 500,000 (Tr. 638). Moreover, no one from Wal-Mart ever told GLS that if Home Depot refused to accept the $ 250,000 line item in its pro forma, GLS would not have to pay the full $ 500,000 to DiMucci (Tr. 374).

 27. On August 2 Black wrote Schwab to advise him that Wal-Mart's Executive Committee had accepted the GLS proposal (Tr. 596-97, P.Ex. 46). Black there represented that Wal-Mart would have its attorney exercise the option under the Option Agreement immediately and prepare an assignment to GLS. On the same date Wal-Mart's attorney gave written notice to Pacella that Wal-Mart was exercising the option (Tr. 176-77, P.Ex. 44). That exercise did not require any contemporaneous payment by Wal-Mart, but an escrow was required to be opened and the purchase price deposited by September 2. As matters were to develop, however, later discussions between the attorneys for Wal-Mart and Pacella resulted in a number of agreed postponements for the escrow opening date, so that the contract was not ultimately declared to be in default until November 16 (Tr. 177-79). And as a result of the post-August 2 developments referred to in later Findings, Wal-Mart never did provide GLS with the promised document assigning its rights under the Option Agreement to GLS (Tr. 404).

 28. To return to DiMucci's situation during the period just discussed, Filler testified that he had been unaware that Wal-Mart was looking for another developer (Tr. 39). Consistently with that position, on July 30 Filler wrote Home Depot to request further documentation and the scheduling of a meeting to arrive at the final terms of an agreement (Tr. 39-40, P.Ex. 42). On August 2 Home Depot responded to Filler, rejecting DiMucci's proposal and advising him that Home Depot would be using a developer chosen by Wal-Mart (Tr. 40, P.Ex. 45). Shortly before he received that letter, Filler had been told by Blonstein that GLS was going to be the developer (Tr. 40-41).

 29. Cicero also had not previously been told of any decision not to use DiMucci as the developer of the Property. On July 14, without mentioning the negotiations with GLS, Blonstein assured Both that Wal-Mart and Home Depot were prepared to go forward with the development of the Property and to exercise the purchase option and close by September 2 (Tr. 282, P.Ex. 33). On July 19 Both wrote to Blonstein to confirm those statements and to request that Blonstein forward to him written confirmation of the facts from representatives of Sam's Club and Home Depot (P.Ex. 33).

 30. When Erwood was told that Wal-Mart had approved the GLS proposal, he called Both to advise him that GLS would be the developer of the Property (Tr. 244-45). Both testified that Erwood's announcement came at him "from left field." Both had never heard of GLS and knew nothing about it, for Cicero had been dealing only with DiMucci, which Both understood was going to be the developer (Tr. 290-91).

 31. Both told Erwood that Cicero had done its own diligence and had negotiated, and thought that it had reached an agreement, with DiMucci. Although Cicero was not going to close the door on another developer, Both said that it was unhappy about the way things were developing or not developing, that its officials did not want Wal-Mart dictating how to run the Town, that it was Cicero's money that was paying for the development, which involved a large investment, and that Cicero did not want to be taken for granted (Tr. 291-92).

 32. On August 3 Erwood met with Both and other Cicero representatives, including the President and some Councilmen, and made a pitch for GLS. They told Erwood that they would consider it and get back to him (Tr. 249, P.Ex. 47). On August 5 Both wrote Blonstein a letter, excoriating him both for ignoring the admonition in his April 29 letter not to shop the deal and for taking Cicero for granted as a rubber stamp. Both said that Cicero would evaluate the finances of the development and the developer and make a determination as to whether Cicero desired to move forward. Both closed by requesting a meeting with the principals of the tenants (Tr. 291, P.Ex. 48).

 33. Both testified that he called Black and asked her for an explanation. Both said that he didn't "slam the door" on her, but expressed Cicero's concerns that they had put a great deal of time and effort into an agreement and had looked at and been satisfied with the qualifications of DiMucci. He said to her, "Now to start all over again. Why? Why didn't you bring that up earlier?" (Tr. 293).

 34. On August 13 Schwab wrote Cicero President Betty Loren-Maltese, advising her of GLS' involvement in the project and requesting a meeting as soon as possible (P.Ex. 53). Schwab's letter was followed by an August 16 letter to Both from Home Depot, advising him that Home Depot had reached terms with GLS and requesting a meeting to discuss the project with Cicero (Tr. 483, P.Ex. 54).

 35. For its part, after DiMucci learned of GLS' involvement in the Wal-Mart project it took active steps to get back into the deal instead of GLS. Filler had telephone discussions with Black about why Wal-Mart should not use GLS. Filler told her that an outsider from Colorado would have a difficult time recreating what DiMucci had already created in its work with Cicero and in its presentation to Cicero (Tr. 53). Filler testified that he had told Black that he was going to meet with Schwab to try to dissuade GLS from doing the deal, and she said that would be fine. Filler understood that if he were successful Wal-Mart would approve GLS leaving the deal (Tr. 53-54).

 36. Filler had previously been told by Blonstein that GLS was prepared to pay DiMucci $ 500,000 (Tr. 50). And Blonstein testified that Filler had told him of Filler's intention to go to Colorado to offer Schwab $ 500,000 for GLS to step aside. Blonstein said that when he told Black about that, she responded that Wal-Mart did not care as long as it got its store at that location on time and built to its specifications (Tr. 484-85). Although Black denied that she knew beforehand about Filler's meeting with Schwab or its details (Tr. 692), her denial was not credible and is not credited by this Court.

 37. On August 19 Filler met with Schwab in Colorado Springs for about five hours (Tr. 337). Schwab testified that Filler told him how much work DiMucci had previously done on the project. That was a greater involvement and for a greater period than Schwab had been led to believe. Filler also described the difficulties that Cicero politics were likely to cause GLS. Filler asked Schwab how much money it would take for GLS to step aside (Tr. 337-38).

 38. According to Schwab (whose version this Court credits), Filler started at $ 250,000, then ultimately offered GLS $ 500,000 to withdraw (Tr. 339). Schwab responded that he was not interested. He told Filler that the deal was extremely attractive to GLS and that GLS did not want to sell out Wal-Mart. Schwab said that his credibility with Wal-Mart ...


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