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Lululemon USA, Inc. v. 108 N. State Retail

June 17, 2009

LULULEMON USA, INC., PLAINTIFF,
v.
108 N. STATE RETAIL, LLC, DEFENDANT.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff, lululemon, USA, Inc. ("lululemon") filed suit against 108 N. State Retail LLC ("108 N. State") alleging fraudulent inducement (Count I) and a violation of the Illinois Consumer Fraud Act ("ICFA") (Count II), and seeking declaratory relief regarding the parties rights under their lease agreement (Count III). Pursuant to Federal Rule of Civil Procedure 12(b)(6), 108 N. State moves this Court to dismiss lululemon's Complaint for failure to state a claim upon which relief can be granted. For the reasons stated, 108 N. State's Motion to Dismiss is granted.

FACTS

The following facts are taken from the allegations in Plaintiffs' Complaint, which are accepted as true for purposes of deciding this motion to dismiss. Lululemon operates a chain of retail stores that sell yoga-associated fashion wear, athletic clothing, and yoga and athletic equipment. Compl. ¶ 2. 108 N. State is the landlord of certain real property located at 108 N. State Street, Chicago, Illinois, where it is constructing a Shopping Center (the "Shopping Center"). Compl. ¶ 4. Lululemon was approached by 108 N. State's real estate agent in 2007 to discuss the possibility of leasing retail space at the Shopping Center. Compl. ¶ 7. 108 N. State's agent represented to lululemon that Apple Computers ("Apple") had agreed to lease retail space at the Shopping Center and that lululemon could lease space immediately next to Apple's retail store. Id. Lululemon claims that 108 N. State's agent was aware that the close proximity to Apple would be desirable to lululemon since the two companies share a similar customer base. Id. Around this time, 108 N. State's agent delivered a proposed drawing of the Shopping Center that displayed lululemon's store located next to Apple's store. Id.

On November 7, 2007, lululemon executed a Letter of Intent memorializing the then-existing business terms for a proposed Lease Agreement which included a Co-Tenancy clause stipulating that the deal was contingent on Apple's tenancy in the Shopping Center. Compl. ¶ 8. Lululemon contends that it executed this letter based on 108 N. State's agent's representations of Apple's tenancy, and it would not have considered leasing space in the Shopping Center absent this understanding. Id. On or about June 26, 2008, lululemon and 108 N. State entered into a ten (10) year lease for 2,555 square feet of retail space at the Shopping Center (the "Premises"). Compl. ¶ 10. Lululemon asserts that prior to the signing of their Lease, 108 N. State represented to lululemon that Apple had executed a Lease for retail space at the Shopping Center, and without this representation lululemon would not have entered into their Lease. Id. The Lease stipulates that lululemon is responsible for constructing its tenant improvements to the Premises, including the design and construction of fixtures and equipment in the space and requires that this work be completed before the anticipated Grand Opening Date, which was set in the lease for March 13, 2009, but was pushed back to September 9, 2009. Compl. ¶¶ 10, 13.

The Lease also contains a Co-Tenancy Requirement which lays out the potentially changing nature of lululemon's performance under the Lease in relation to Apple's tenancy. Compl. ¶ 12; Compl. Ex. 3, Lease Agreement § 21.26.*fn1 The Co-Tenancy Requirement states that Apple by itself, and at least four (4) of nine (9) named retailers will be open for business by the Grand Opening Date. Id. If the Co-Tenancy Requirement is not met, then lululemon can pay a reduced rent until the Co-Tenancy Requirement is satisfied. Id. If the Co-Tenancy Requirement has not been met after twelve (12) months, lululemon has the option of terminating the Lease. Id. The Lease also contains a provision that permits 108 N. State to relocate lululemon's premises by no more than forty feet in either direction if lululemon shares a "demising wall" with Apple. Compl. ¶ 11; Compl. Ex. 3, Lease Agreement § 1.1(f). During the first week of December 2008, lululemon learned that Apple had not signed a Lease with 108 N. State and when it approached "a representative" of 108 N. State to inquire about what it had heard, the representative acknowledged that Apple would not be opening at the Shopping Center. Compl. ¶ 14. As a result, on January 23, 2009, lululemon sent 108 N. State a formal written notice of termination of the Lease. Id. On January 29, 2009, 108 N. State notified lululemon that it would not accept its termination of the Lease. Compl. ¶ 15.

STANDARD OF REVIEW

When considering a motion to dismiss under Rule 12(b)(6), a court must accept as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). To state a claim upon which relief can be granted, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A plaintiff need not allege all facts involved in the claim. See Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994). However, in order to survive a motion to dismiss for failure to state a claim, the claim must be supported by facts that, if taken as true, at least plausibly suggest that the plaintiff is entitled to relief. See Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). Such a set of facts must "raise a reasonable expectation that discovery will reveal evidence" of illegality. Id. at 1965.

DISCUSSION

I. Fraudulent Inducement Claim (Count I)

To state a claim for common law fraud in the formation of a contract, lululemon needs to allege, with particularity, that: 1) 108 N. State made a false statement of material fact, 2) 108 N. State knew that the statement was false, 3) 108 N. State intended to, and did in fact, induce lululemon to reasonably rely and act on the statement, and 4) lululemon's damages resulted from reliance on the statement. See Fed.R.Civ.P. 9(b) ("In alleging fraud..., a party must state with particularity the circumstances constituting fraud... "); see also Davis v. G.N. Mortg. Corp., 396 F.3d 869, 881-82 (7th Cir. 2005) (listing elements); Redarowics v. Ohlendorf, 441 N. E. 2d 324, 331 (Ill. 1982) (failure to plead even one of the elements requires dismissal). Under Rule 9(b), to adequately plead fraudulent inducement, lululemon must plead "the identify of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." See Windy City Metal Fabricators & Supply, Inc. v. CIT Technical Financing, 536 F.3d 663, 668 (7th Cir. 2008); see also Dileo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) (describing Rule 9(b) particularity as "the who, what, when, where, and how: the first paragraph of any newspaper story").

Here, lululemon has failed to plead its fraudulent inducement claim with the particularity required by Rule 9(b). Lululemon alleges that 108 N. State made three separate misrepresentations:

1) "In 2007, Defendant's real estate agent represented to lululemon that Apple had agreed to lease retail space at the Shopping Center and that lululemon could lease space immediately next to Apple's retail store," 2) that "around this time, Defendant's agent delivered to lululemon a drawing of the shopping center that specifically showed lululemon's store located next to Apple...," and 3) that "before the lease was executed, Defendant represented to lululemon that Apple had executed a Lease for retail space at the Shopping Center." See Compl. ¶¶ 7, 9. Although lululemon has pled the content of the alleged misrepresentations, and it may have satisfied the "who" with regards to the first two alleged misrepresentations, because 108 N. State's real estate agent is identified in lululemon's Letter of Intent which is attached as an Exhibit to its Complaint, it has not adequately pled the identity of the party making the third alleged misrepresentation. Additionally, lululemon does not plead with particularity the time when the misrepresentations were made, the place in which they were made and the method in which they were made. Lululemon merely states that two of the three alleged misrepresentations were made "in 2007," and the third was made sometime "before the lease was executed." See Compl. ¶ 7, 9. While the Court does not read Rule 9(b) to require the provision of exact dates, giving such a vague time frame is insufficient to adequately plead when the alleged misrepresentations took place. Likewise, lululemon simply alleges that 108 N. State's Agent "represented," during discussions, that Apple agreed to lease space at the Shopping Center, that Apple had executed a lease for the rental space and that lululemon could lease space immediately next to Apple. See Pl. Compl. ¶ 7, 9. This, however, is insufficient; lululemon must specify the method of communication, indicating not only whether the alleged misrepresentations were oral or written but also whether they were made in person, by phone, or by some other medium. See Hologic, Inc. v. Dunworth, 98 C 3200, 1999 WL 529564, at *2 n. 6 (N.D. Ill. July 20, 1999) (Gottschall, J.). Lastly, lululemon has completely failed to identify the place in which the alleged misrepresentations were made. As such specificity is required to state a claim for fraudulent inducement ...


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