Trolley Square slaps Whole Foods with $50 million breach of contract suit

The owners of Trolley Square have sued Whole Foods for $50 million, claiming the natural foods grocer has been noncommittal about a store that was supposed to be constructed as an anchor tenant in the remodeled shopping center.

Attorneys for Trolley Square Associates LLC, based in Portland, Ore., filed the suit Thursday in 3rd District Court, claiming the Austin, Texas-based grocer breached a contract signed in October 2006. That contract, the suit claims, called for Trolley to build the store northeast of the main Trolley Square building, on the corner of 600 South and 700 East, and for Whole Foods to lease the space for at least 20 years.

Whole Foods would pay $1.5 million a year for the first five years, and eventually more per year with time, plus 1.5 percent of the store's annual gross sales, according to the suit. In 2007, Whole Foods acquired the Wild Oats supermarket chain, including a Wild Oats that's about one block away on 400 South, according to the suit. That store became a Whole Foods location and would compete with a would-be Whole Foods at Trolley, the suit claims.

In the fall of 2008, Whole Foods announced to shareholders changes in operation of new stores, including smaller stores that are around 35,000 to 50,000 square feet, which is smaller than the 60,000-square-foot store planned at Trolley, the suit said. Whole Foods reported in Securities and Exchange Commission filings that it increased financial reserves for lease subsidies, lease terminations and future payments on existing real estate from $92 million to $97 million.

Trolley believes that the competition from the 400 South store, combined with the new company strategy, led Whole Foods to waiver on the Trolley store. Trolley Square obtained the financing and prepared for construction but had not started construction, even though it was supposed to begin in November 2008, according to the suit.

The original contract stated the store would be 53,260 square feet. The parties amended it to 60,438 square feet in August of 2008, according to the suit. But two months later, Trolley's owners learned of "instances in which Whole Foods was refusing to open stores or was negotiating lease terminations or delays and reductions throughout the country."

Trolley sought assurance from Whole Foods and received mixed answers, the suit states, originally being told that everything was going to proceed as planned. In late October 2008, a Whole Foods employee asked Trolley to delay the opening of the store for a number of years.

For the next eight months, the companies tried to resolve its issues by decreasing the size of the proposed store, recruiting other tenants and exchanging money but reached no consensus.

The suit quotes a June 5 e-mail in which a Whole Foods employee states, "Given the economy's current instability and its projected uncertainty, Whole Foods is undecided as to the date that we would open a store in accordance with the lease... Accordingly, Whole Foods prefers to postpone determining an opening date for a store up to 60,000 square feet until after market conditions materially stabilize and improve."

The Deseret News sought comment Friday afternoon from Whole Foods by e-mail and phone through a public relations company the grocer uses. No messages were returned.

In addition to the $50 million, Trolley seeks punitive damages to be determined by a judge or jury, attorneys fees and court costs, the suit states.

E-MAIL: lhancock@desnews.com